Expert Fascists: The Untold Story of the Spirit of Our Age

“History is a nightmare from which I am trying to escape,” someone said once. In the case of austerity, the nightmare has lasted for more than a century and the alarm isn’t about to jolt us into reality. “Outside, perhaps, of the less than three booming decades that followed World War II," Clara E Mattei notes soberingly in the introduction of her fine book The Capital Order, “austerity has been a mainstay of modern capitalism”.

Even the words are the same. In 1920, upholding the urgent need for countries to “pay their way” through spending cuts and individual abstinence, Lord Robert Chalmers, former permanent secretary at the Treasury, warned of the necessity of “painful” choices. In 2024, as an autumn budget featuring spending cuts of £1bn per department and tax rises looms, Sir Kier Starmer, PM of something called the ‘Labour’ party, has told us to steel ourselves for the “painful” decisions that must be made.

And just as in the 1920s, the promised sunlit uplands – the better times which this perpetual medicine is supposed to give way to – never appear. We must, says Starmer, “accept short-term pain for long-term good”. But we have been hearing that message for 14 years. Britain has been subject to austerity – of the fiscal kind – since 2010. And we (or the governing classes) are still making the same mistake. Maybe, as Mattei suggests, it’s not a mistake.

The Capital Order is about the origins of the creed of austerity. In the aftermath of the First World War, when the public wanted a “land fit for heroes” and the workers’ movement was on the march after decades of subservience, the wise, grey men in the shadows of power realised that something had to be done. The pressure of “excessive” demands on government had to be eased and workers, who were not only pressing for wage rises but questioning the immutability of the rule of capitalists over industry (‘the capital order’ of the book’s title), needed to know their place again.

Without drastic change and a remoulding of public opinion, the result would be ‘socialism’ or, in the worst nightmare of all, workers’ control and Bolshevism.

In Britain, the spirit of the age was trending in this catastrophic direction. Strikes were rampant and ‘reconstructionists’ from the elite, inspired by what had been possible during the war after laissez-faire had been discarded, were hatching plans for a free national health service and huge house-building programme (financed in part by local councils through non-profit making building guilds). It is fascinating to discover that the bulk of the reforming programme of the Attlee government after the Second World War was actually drafted in 1918-20 before being brutally scotched.

In Italy, as Mattei elucidates, things were even more serious. The workers’ movement was reaching the peak of its power – factories were seized and occupied during the long hot summer of 1920. The government stood by, helpless, and revolution seemed just a matter of time.

But at this point in both countries economists and bankers decisively entered the stage of history. On their advice, politicians implemented ruthless austerity. In Britain, savage spending cuts (the ‘Geddes Axe’) were forced through, and a policy of high interest rates, which caused a recession and mass unemployment, imposed in the face of protests. By 1922, wage levels were a third of what they had been in 1920, and 20% cuts in government spending were forced through. Confronted with the situation, workers went into survival mode and the strike wave evaporated.

The Italian ‘solution’ was even more extreme – Fascism. Mussolini marched on Rome and the supine Parliament granted full powers to his minister of finance, the liberal economist Alberto de Stefani, and his team of mainly non-Fascist advisors.  Free to follow their hearts’ desires, they implemented drastic reductions in welfare spending, abolished short-lived experiments in progressive taxation on the rich and corporations, and privatised state-run enterprises such as telecommunications. Coupled with Mussolini’s brutal physical destruction of the Left and workers’ organizations, the economy was pacified and profit-making made a safe endeavour again – though at the cost of wage levels, which sank like a stone, and political and economic freedom.

I must quibble here with the subtitle of the book – How Economists Invented Austerity and Paved the Way to Fascism. In Italy, they didn’t pave the way to Fascism; they were Fascism.

But regardless, what Mattei has done here is a wonderful example of historical revisionism (which is usually tainted by being associated with holocaust denial). It tells you things you very likely did not know and corrects the oversights of the historical ‘canon’ – a narrative which views the 1920s as a well-meaning period blind to the pain to come as a result of the Great Depression and the “low, dishonest decade” to follow. This book changes the way you view the past and thus the present.

Based on the experience of the last decade or so in Britain and Europe, most people tend to view austerity in terms of budget cuts and (regressive) tax rises. But, as Mattei points out, this is just one prong of the “austerity trinity”.

Fiscal austerity (1) is often accompanied by (2) monetary austerity which entails large rises in interest rates – the cost of holding debt – ostensibly to combat inflation but at the cost of driving the economy into recession. In the 1920s, this was known as the “dear money” policy – “the queen of all austerity policies in Britain” according to Mattei.  Dear Money was inaugurated in 1921 (when interest rates were raised to 7%) and lasted for more than a decade. It was still the official response to the Wall Street Crash of 1929 and predictably only made things worse. But the most brutal example of monetary austerity in the West took place at the beginning of the 1980s on both sides of the Atlantic, when interest rates were hiked to above 17%. The result was recession, mass unemployment (reaching 4 million for a decade in Britain), and the taming of organized labour. Again these results were not an unfortunate mistake. And the lady wasn’t for turning.

The last leg of austerity is (3) industrial austerity, which involves privatisation and crushing organized labour and the right to strike. Both, as Mattei details, were an integral part of Fascist austerity in 1920s’ Italy which literally destroyed (physically) the workers’ movement, enshrining a period of ‘industrial peace’. Industrial austerity was zealously resuscitated by Margaret Thatcher in the 1980s leading to a world-wide revolution in economic ‘common sense’, shaping the economic landscape we now take for granted. Nowadays in Europe, if you displease the economic overlords of the European Central Bank, you will be compelled to swallow the medicine of both fiscal and industrial austerity – budget cuts, privatisation, and laws against striking.

But if the economic history of the 20^th and 21^st century has, in the main, been one of austerity, the three horsemen of the austerity trinity have not always been paraded at the same time. Depending on the circumstances, different aspects have been stressed while others have been ignored – or in fact seriously transgressed.  This discordant record, dependent on the needs of the time as defined by technocrats shielded from democratic accountability, reveals – as we will see in part two – a lot about our current economic predicament.

Other People's Money – The Degeneration of Thatcherism, part two

 And so we move on to part two of the chronicle of the Conservatives’ remarkably profligate attitude towards other people’s money, despite what Margaret Thatcher may have led you to believe in 1978. Here is part one. 

This revisionism is not solely directed at Conservative hypocrisy – tempting as that may be – it also exposes the barren hulk of the current Labour party, which promises to transport us back to the halcyon days of early David Cameron. Another of Margaret Thatcher’s famous lines was to describe New Labour as her greatest achievement. “We forced our opponents to change their minds,” she said. And we haven’t stopped paying for it since.

Housing

If any part of British society bears the unmistakable imprint of Thatcherism – and almost all do in some way – it is the housing sector. The policy of the ‘Right to Buy’ – allowing council house tenants to buy their homes at discounted rates – undoubtedly came to embody the Thatcherite promise of creating a ‘property-owning democracy’. In awarding her the Presidential Medal of Freedom, the elder George Bush commended Thatcher for putting “private roofs over British heads”. But the policy, because it also involved preventing councils from replacing the stock they had to sell, had one consequence that was the polar opposite of owning your own property – having to rent it.

The number of private renters has more than doubled since the turn of the century and that doesn’t include those renting from housing associations. This change was enabled by classic Thatcher-era legislation, the 1988 Housing Act, a deregulatory bonfire which introduced short-term tenancies, allowed landlords to charge whatever rent they liked, and got rid of any security of tenure for tenants, permitting them to be evicted with only two months’ notice. It presaged a huge change from the post-war social democratic settlement which was characterised by a mix of owner occupation and council housing. “The private landlord, increasingly associated with the rack-renting of slums was nearly eliminated”, wrote historian David Edgerton of that period.

But this brave new (old) world which saw the triumphant return of the private landlord and the phasing out of council housing had consequences: the number of private tenants who couldn’t afford the rent, and thus became reliant on financial assistance from the state, shot up. The amount spent on housing benefit increased from less than £2 billion to £24 billion in 2015/6 and now stands at over £30 billion a year. This is a public subsidy to landlords to make up for the fact that the level of rent they are charging is beyond the capacity of their tenants to pay. True Thatcherite Conservatives like to present the enormous housing benefit bill as indicative of out-of-control welfare spending that needs to be pruned back but, in fact, it is a direct result of their deliberate gutting of the post-war social order.

Speaking of which, the Cameron/Osborne administration did successfully, although temporarily, reduce the size of the housing benefit subsidy. Naturally, this was through eliminating tenants’ entitlement to it – through denying it to under-21 year olds and introducing a benefit cap – rather than reducing the need for it by cutting rents. Curiously though, a little publicised feature of the Conservatives’ 2016 Welfare Reform Act did indicate the financially sensible nature of the latter approach. ‘Social’ Landlords – i.e. local councils and housing associations – were required to reduce rents by 1% a year for four years. According to a House of Commons Research Briefing, “of all the measures implemented to date, the requirement on social landlords to reduce rents …. has achieved the highest level of saving.”

Innocently, you might think therefore that such a policy of rent capping should be applied to the private sector, where rents, the number of renters and the housing benefit subsidy have all mushroomed over the last 30 years. But such an idea doesn’t factor in how the Conservatives are the party of asset owners, whose interests – even if reliant on a huge state subsidy – must be protected at all costs. Rent control, if applied to the private sector, seems to cause an irrationally vituperative reaction among Conservatives. Friedrich Hayek, Margaret Thatcher’s favourite philosopher, described the policy as “deadly”. More recent adepts have condemned it as almost as devastating to a city as bombing it.

At the other end of the scale, the Conservatives have subsidised the deposits and mortgage repayments of first time home (usually flat) buyers through the Help to Buy scheme launched in 2013 which has so far cost £21 billion. Aside from artificially raising house prices, and thus benefiting housebuilders like Taylor Wimpey, the scheme has left recipients high and dry after the huge rise in interest rates, and thus mortgage interest payments, following the Truss debacle. But such is the Conservatives’ obsession with home ownership, seen as such an indelible part of Thatcher’s remodelling of British society, they are prepared to move heaven and earth –  including their own allegedly free market ideology – to massage the optics.

The Economy

The Conservatives did not, it should be said, instigate the huge state bail out of the banks that the British government felt it had no choice but to pay following the 2008 financial crisis. That was the prerogative of the last Labour government. But market fundamentalist Thatcherite ideology – convinced of the inherent wisdom of allowing those at the top of society maximum leeway – was certainly in attendance in spirit.  And the Sunak administration is pursuing the very sensible policy of removing the regulations that Cameron introduced as a sop to the prevailing zeitgeist that something had to be done to prevent 2008 from playing out again. I’m sure it’ll end well.

What can be laid at the door of Thatcher’s children, however, is subsequently using the exclusive money generating power of the state to massively augment the wealth of the richest in society. This was through the capital creating policy of Quantitative Easing (QE). Since 2008, QE has been deployed three times – immediately in response to the financial crisis (Labour), after the Brexit vote (Tory) and then again in the economic panic that ensued post-Covid (Tory) – totalling £895 billion in Britain alone.

QE works by creating a huge mass of money (so-called fiat money), that naturally seeks investment opportunities. The stock market is one of those investment outlets, although the booms engineered are decoupled from traditional market reasoning – the backing of companies because they are thought likely to be successful in the future. The resultant “explosion in billionaire wealth” – the cumulative wealth of the UK’s top 10 billionaires has increased by 281% since 2009 – therefore cannot be explained solely, or even mainly, by the natural workings of the market. During the pandemic for example, economic activity and growth plummeted but the number of UK billionaires rose by a fifth. This huge wealth – a billion is a thousand million – has been given a stupendous boost by positively Stalinist state intervention, carried out by, among others, devoted Thatcherites.

It should also be pointed out that Quantitative Easing directly contradicts one of the core tenets of original Thatcherism, that of monetarism. Developed by the American ‘free market’ economist, Milton Friedman, monetarism held that, to combat inflation, the supply of money should be strictly controlled. Doubtless the theory was honoured in the breach by ’80s Conservatives, but from the 2010s government policy around the world has simply laughed at it. Whether the inflation we are now experiencing has something to do with massive increases in the money supply – á la Friedman – is a moot point. In the last decade, notwithstanding regular doses of QE, the main threat was deflation, not inflation, suggesting that the capital boost of QE had stayed within the financial system. Possibly the last tranche of it – the creation of $834 million dollars an hour worldwide for 18 months – was so huge that some of it, in line with the official narrative, leaked out. Or maybe support for a largely mothballed ‘real’ economy – i.e. increasing the amount of money in circulation but reducing the amount of goods – produced the classic ingredients for inflation. Who knows?

Certainly now, we are seeing the opposite of QE, so-called Quantitative Tightening (QT), on the part of the world’s central banks, along with increases in interest rates. Whether this presages a new financial crisis, which may be unfolding as we speak, is an interesting question. But to even make a dent in the massive inequality caused by the economic intervention of adoring Thatcherites it would have to go on for decades.

Possibly Conservatives would retort that their post-Thatcher predilection for economic intervention does not just help those at the summit of the society but also the many millions at the bottom end. This is through working tax credits which ‘top up’ low or moderate incomes. Tax credits were introduced in America in the 1970s and expanded massively by Bill Clinton. Naturally, this country followed suit, and working tax credits became a core part of New Labour’s welfare philosophy (with emphasis on the working).

Their origin among parties theoretically antithetical to Thatcherism and Reaganism is deceptive, however. In reality, tax credits are another form of state subsidy to vested interests, enabling employers to pay low wages and institute more part-time or zero hours contracts with the assurance that the state will meet the shortfall. They are an essential part of our Thatcherite economic landscape. In 2015, the charity Citizens UK revealed that large retailers, such as Next and Tesco, were costing taxpayers £11 billion annually so that their staff could enjoy “a basic standard of living”. The situation has only become more acute in the interim.

Perfunctory, if high profile, attempts to wean on employers off tax credits, such as Osborne’s higher minimum wage, have not worked partly because they have been accompanied by a never-ending war on trade unions, the one force in society capable of making tax credits unnecessary through compelling employers to pay higher wages. Rishi Sunak’s anti-strike legislation, which permits employers to seek damages for the effect of strikes, will hit what’s left of trade union power, already hobbled, as we know, by archetypal Thatcherism. Tax credits in themselves are hostile to trade unions because if wages rise because of trade union influence, the tax credit level will fall as a result. It is no accident that a country such as Norway, which regards trade unions as social partners, not ‘the enemy within’, and which has a system of sectoral collective bargaining to determine wages, has not introduced tax credits. It doesn’t even have a minimum wage because strong trade unions mean it isn’t necessary. Norway, incidentally, also has a much higher standard of living.

It’s clear that the Thatcherites in Britain didn’t vanquish ‘socialism’ as they claimed they had. They merely changed the beneficiary group.

Covid and Corruption

There is something viscerally enraging about the Conservatives’ fiscal incontinence during the Covid pandemic.  It came after years of justifying taking money away from poor people – through policies like the benefit cap, sanctions and reducing the amount received by sickness claimants by £30 a week – on the grounds that it was only fair to the hard-pressed taxpayer.

But the interests of the taxpayer, allegedly so close to Conservative hearts, were strangely downgraded during the Covid lockdown when corruption and the raiding of the public purse by friendly businesses were rife. Virtually no prosecutions concerning the £5.8 million lost through fraud have taken place despite 30,000 allegations of fraud being reported to HMRC. The same is true of Rishi Sunak’s month-long Eat Out to Help Out scheme, which attracted an estimated £21 million in fraudulent claims from the hospitality sector. This dawdling contrasts with the alacrity that the Conservatives look upon alleged fraud in the benefits system. Permanently staffed hot-lines for the public to report fraud, regular tests for sick and disabled people, and the dispensing of thousands of sanctions to claimants for not upholding their “contract with the state”, have been features of this parallel universe in the UK for years.

In total £4.3 billion lost in fraud during Covid has been written off by the Treasury, prompting one minister in the House of the Lords to resign and accuse the government of “having little interest in the consequences of fraud to our society”.

But far from having little interest in it, Conservatives seem positively in favour of subverting free market ethics when it involves their friends. Michelle Mone, accused of secretly receiving some of the profits of a PPE firm that won large government contracts after she recommended it ministers, became a Conservative life peer in 2015. Altogether, nearly £1 billion in Covid contracts were awarded to 15 companies linked to donations to the Conservative party. It certainly pays to network.

The Conservatives’ alleged concern with getting value for money for the taxpayer is for the birds. The overriding aim is that 1) A narrow elite circle benefit and 2) The cash – otherwise known as other people’s money – finds its way through labyrinthine sub-contracting to the “good hands” of the private sector. Dido Harding, appointed as chair of “NHS Test and Trace” in 2020 is an example. Her lack of medical experience was no obstacle. Known as “an accomplished networker” according to The Times, she went to Oxford with David Cameron, married a future Conservative minister, and rose to become the chief executive of a mobile phone company and a Tory peer. Despite being given an astronomical £37 billion in funding, Test and Trace, reliant on sub-contracting by firms like Serco and consultants paid up to £6,000 a day, was a monumental failure, with more than 60% of those with Covid symptoms not being contacted. By contrast, the in-house teams of the doomed Public Health England and local authorities reached nearly 98% of their contacts. Go figure.

Ubi omnes errabis?

As alluded to earlier, this is not about simple hypocrisy. Arguably most political movements are hypocritical in that they don’t do what they say they are going to. The historical reputation of the Britain and America is that they compelled the rest of the world to accept the virtues of free trade, whereas in reality they were arch protectionists, and in Britain’s case, actually destroyed the industries of competitors through imperialism.

But Thatcherism started out with free market intentions. In its early days it preached the tenets of monetarism and controlling the money supply, sold off loss making industries to the private sector, declared war on trade unions as impediments to ‘free’ employment relations and hiked interest rates (causing a huge recession and remaining unmoved while thousands of businesses who couldn’t survive in the new unforgiving environment went to the wall). Only gradually – through for example contracting out essential public services and bailing out ‘too big to fail’ banks – did it morph into something else. Now the Thatcherites, notwithstanding their free market sheen, are presiding contentedly over a system of socialism for the rich.

Partly this is to do with misunderstanding what conservatism is. Friedrich Hayek, the major intellectual influence on the modern Conservative party, succeeded in reconnecting it to its classical liberal, or ‘old Whig’, philosophical inheritance. According to him, this conservative-liberalism, in contrast to idealistic socialism, had a “low” view of human nature. Hayek famously said that everything would turn out well if everyone behaved selfishly. But this selfishness was meant to exist within the law and the rules of the free market.

But nobody, besides intellectuals, believes in the sanctity of the free market. Many wealthy people will go where they can make even more money and the state, which rakes in and distributes hundreds of billions of pounds, offers that opportunity. The corruption around Covid illustrates the temptations and modern privatisation more broadly relies on the existence of a well-endowed state which can re-distribute taxpayer funds to the private sector. The Conservatives have, for years, been resolutely unforgiving about a ‘something for nothing’ attitude on the part of the multitude. Benefit sanctions, already at an all-time high, are being multiplied still further by Jeremy Hunt. But for the rich this sternness melts like ice left out in the sun. This is because the Conservatives are, and always were, a class-based party and exponents of class solidarity. When Tony Blair declared in 1999 that the class war was over, only one side was listening.

But the degeneration of Thatcherism has deeper causes than just the class bias of the Conservative party. Thatcher tapped into a profound conviction among Conservatives that if burdensome regulations and socialistic rates of taxation were lifted, the result would be prosperity for all and runaway economic growth. This certitude can be traced back to Adam Smith who thought the “natural effort of every individual to better his condition” was so powerful a principle it would carry society to “wealth and prosperity” and surmount ignorant obstacles placed in the way by “the folly of human laws”.

Coincidentally, the UK did – in common with the rest of the world – experience an economic boom in the mid-1980s. Naturally, Thatcherites took this as confirmation of the economic wisdom of their policies, which despite the temporary pain involved, had to be persevered with (actually the pain was probably connected to the ensuing boom, capitalism had always relied on a shake-down of capital value to lay the ground for subsequent growth). In fact, the economic boom of the mid-1980s became lodged in the public mind as the consequence of tough Thatcherite medicine and has endured despite the boom being revealed as a unique event.  Economic growth has declined in every decade since the 1980s, culminating in the present torpor. Real wages are not predicted to return to their 2008 level until 2026 and are experiencing a 3.9% annual decline, productivity is terrible when compared to before the Financial Crisis (0.5% compared to 2.3%), and business investment is anaemic.

But rather than face up to these issues, Thatcher’s children are umbilically attached to the idea that the only solution is more deregulation and tax reductions for the investors. These policies – known as supply-side reforms because they concentrate on those ‘supplying’ investment and employment (or not) – are religiously propagated by many conservatives despite the fact that they have already been implemented, with the results we see before us, for nigh on four decades (the corporation tax rate was 52% in 1981, it is now 19%). Liz Truss, for example, convinced herself that a bias towards redistribution over economic growth lay at the root of poor economic performance despite the evidence pointing in exactly the opposite direction.

One very obvious reason why these questions are not honestly examined, is that it would move into the crosshairs numerous Thatcherite shibboleths, most notably the idée fixe that underperforming economic growth can be palliated by reducing tax rates and irksome regulations on the wealthy. This ‘fix’ seems to be impervious to empirical evidence, though the Sunak administration is finally increasing corporation tax after decades of reductions, hoping no-one will notice that this contradicts a basic tenet of conservative economic philosophy.

As the South Korean economist Ha-Joon Chang pointed out a few years ago, the level of regulation is not a disincentive if there is a prospect of profit to be made. “…. strange as it may seem to most people without business experience,” he wrote in 2010  “businesspeople will get 299 permits … if there is enough money to be made at the end of the process. “In contrast, if there is little money to be made at the end of the process, even 29 permits may look too onerous.”

Why there is in the UK “little money to be made” – with the notable exception of finance and property – is not a question many are eager to ask, especially if it indicts their whole economic strategy which supposedly rests upon the inherent virtue of making money.

Herein lays the explanation as to why Thatcherism has degenerated into a system of socialism for the rich. It’s quite possible – indeed common – to remain ideologically blinkered in the face of evidence showing the hollowness of your ideology. It’s even possible to implement policies, such as corporate tax cuts, that do not have the beneficial effect you say they will. But it’s not possible to ignore the real world consequences of the failure of your economic philosophy. That is why free market Thatcherism has degraded into a swirl of subsidies, bail-outs, phoney privatisations, landlord patronage and plain corruption. They’ve been necessary because the free market hasn’t been able to prosper under its own devices and if you, as a party, represent the interests of asset-holders at the end of the day, they aren’t especially difficult choices to make. And in those circumstances, delving into the ready pile of “other people’s money” becomes irresistibly tempting.

But the remains – what lies at the root of economic failure?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 19^th 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 21^st 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.

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