When Clement Met Margaret – the unholy alliance of the 1950s and the 1980s

It’s the worst of both worlds. A glance at 20^th century economic history indicates that the noxious right-wing consensus currently ruling the roost in this country is intent on the nightmarish combination of post-WW2 military Keynesianism (state spending on arms manufacturers) with 1920s/1980s austerity which shuffles the tax burden onto ordinary people and lets the rich get away with murder.

In order to appease Trump, Sir Kier Starmer has promised to spend an extra £32 billion a year on defence (taking spending on weapons to at least 3.5% of GDP) ostensibly on the absurd notion of protecting the country from Vladimir Putin menacing British streets. And absent any willingness to tax the billionaires, this can only come from renewed austerity and increased taxation on most people.

The image of post-war decades in this country (and Europe) is bathed in the sepia-tinted light of the birth of welfare states and health services. Out of the rubble of World War Two, Britain created the National Health Service and instituted a mass council house building programme, two things that clearly cost a lot of money. This can be designated social Keynesianism (state spending that benefits people).

However, this memory is selective. At the same time, after falling immediately after the Second World War, military spending hit 11.2% of GDP around the time of the Korean War in the early ’50s. It subsequently dropped but still remained comparatively high, holding steady at over 5% of the GDP in the 1970s.  This can be designated military Keynesianism (state spending on weapons). Hitler and later Ronald Reagan were quite taken with the concept.

Bear in mind that 5% of GDP is what Trump and Nato want military spending to be.

In truth, the post-war years saw the creation of both a welfare and a warfare state. “After the Second World War, Britons built not only a new Jerusalem but a new Sparta,” writes historian David Edgerton in The Rise and Fall of the British Nation. “Though no longer one of the greatest powers, in the 1950s the United Kingdom was militarized to an unprecedented peacetime degree.”

Into the 1960s and ’70s, he notes, the “warfare state” consumed more than the health or education budget.

Now we are told, in the midst of what is undeniably a much richer country, that we must choose warfare over welfare. Not we have a genuine welfare state nowadays anyway. After years of ever greater conditionality rules being attached to it, it is more properly classed a punishment state.

But what is interesting about the post-war years is not only that a balancing act between welfare and warfare was achieved but that it was done without imposing unbearable levels of taxation on ordinary people. The lower middle class enjoyed an effective tax rate far lower than today (before the increase in military spending hits), whilst large and essential ‘consumer’ items, such as houses, were much more affordable.

How was this possible, let alone actualised? The answer lies in three decades of robust economic growth (the best in the history of capitalism) which permitted rising public spending – part of which was diverted to military purposes – and the paying off of war debts. But this package, benign in certain respects, was enabled by much heavier taxation of the wealthy, encapsulated in the Beatles’ song ‘Taxman’, an embittered two and half minute whinge about paying 92.6% supertax. In fairness to its author, George Harrison objected to paying tax so governments could find new ways to bomb people and in that he was, at least partially, justified.

Socially speaking, however, the post-war years were a conscious repudiation of the policies of the 1920s and ’30s. As shown by Clara Mattei in The Capital Order in many countries, Britain and Italy for example, this involved swingeing cuts to public spending (that had risen in the aftermath of World War One), coupled with reducing direct taxation on the rich and increasing indirect taxation of consumption, especially duties on working class pleasures such as tobacco, beer and spirits. In Britain corporation tax, only created in 1920, was abolished four years later and would only return after 1945.

By then this economic cocktail was thoroughly discredited. It had contributed to and exacerbated the economic depression of the 1930s, laying the foundations for the worst conflict in human history, the Second World War.

But the dawn of the 1980s was long enough for amnesia to have set in. Thatcher in Britain and Reagan in America set about rehabilitating the economic prescriptions of the 1920s. Public spending was held down, mass privatisation inaugurated, and taxation precepts turned upside down. Direct, progressive, taxes on the rich were slashed while consumption taxes – regressive because everyone pays the same – were hiked. For example, corporation tax was 51% in 1981 and it is now at less than half that level (and recently has been even lower). VAT has gone in the opposite direction. It stood at 8% in 1979 and has since nearly trebled.

There is admittedly one significant difference. Whereas the austerity mongers of the 1920s were unconcerned about the effects of their policies on mass consumption, since the 1980s our political overlords have been far less complacent. A four-decades long house price boom, the huge expansion of personal debt, frequently low interest rates, and the introduction of tax credits have attempted to compensate for the fact that wages have not risen as they did in the post-war decades and in recent years have flatlined.

Some have called this privatised Keynesianism – a third kind of economic policy named after someone who died in 1946.

But the point is that, in conspicuous contrast to their predecessors of the 1920s, Thatcherism and Reaganism had the necessary stickiness. They stayed around. So much so that the current ‘Labour’ government in Britain is, in essential respects, Thatcherite. It is committed to deregulation, not increasing tax on the wealthy and keeping utilities like water and electricity in private hands. Any similarity to the Clement Attlee government of 1945-51 is purely rhetorical.

Except, though, in one respect. It is intent on repeating the trick of post-war military Keynesianism which, in addition to the creation of the NHS and nationalisation, the Attlee government eventually succumbed to, especially with Britain’s involvement in the Korean war in 1950. In response to this, defence spending doubled.

The post-war decision to increase weapons spending was not painless. It involved introducing charges for some NHS services which sparked a bitter controversy and much soul-searching about the meaning of democratic socialism.  But the conversion happened without sacrificing the core of the post-war settlement. The Conservatives – in power from 1951 – continued the huge council house building programme and the welfare state was expanded in the 1960s and ’70s.  Government policies tended towards increasing equality.

However, that was then. Thanks to the incredible shelf-life of Thatcherism, we don’t live in the same country anymore. As a result, something has to give – if you want to spend an extra £32 billion on the military, the money will have to be re-allocated from elsewhere and augmented from increasing taxation even more on moderate earners.

This process is already in the works.  In addition to slashing support for new claimants for disability benefit, the government is merging the Work Capability Assessment (for Universal Credit) into the assessment for Personal Independence Payments.  It is estimated that over 600,000 chronically ill and disabled people will lose their means of support as a result.

Plans to raise the state pension age to 70 are cut from the same cloth.

As socialist economist Michael Burke has said, “the funding for the war drive can only be generated by much harsher austerity, harsher even than in 2010.”

More and more, the decades following World War Two appear a unique aberration in the history of capitalism, precipitated by a uniquely destructive conflagration that was the deadliest in history.

Rather the norm is austerity, low taxation of the rich and corporations, unending hostility towards trade unions, and military aggressiveness.

Politically we are reverting to type too. The Second World War alliance against Nazism of a ‘communist’ country and western capitalist states only came about as a last resort after the latter had exhausted all other possibilities. Previously, and for years, British and French elites had wanted to enlist the Nazis as a “bulwark against Communism”, giving them a “free hand” to attack the Soviet Union. Even after the outbreak of the Second World War (during the seven-month “phoney war”), Britain and France still plotted an attack on the Soviets.

The preference for the far right has clear echoes today. Despite growing public disquiet at the genocide, the British government is still supporting the Fascist Israeli government and the West finds de facto support to Fascist thugs in Ukraine aligns with its geopolitical ambitions.

Is there an alternative to this witches’ brew? I want to explore those possibilities in a later post.

Chasing Unicorns? Orwell, socialism and patriotism

“England has got to be true to herself”, a famous English socialist once wrote. “She is not being true to herself while the refugees who have sought our shores are penned up in concentration camps, and company directors work out subtle schemes to dodge their Excess Profits Tax”.

George Orwell typed these words in 1940, in the middle of the Blitz as German bombs were raining down. His short book, The Lion and the Unicorn: Socialism and the English Genius, has subsequently become the ur-text of a patriotic vision of socialism. Corbynism, it is claimed, fatally lacked this essential ingredient of popularity – indeed stamping on any tendencies in this direction. This was a major reason why it crashed and burnt in the 2019 election. Socialism still – in Orwell’s phrase – has not “really touched the heart of the English people”.

Keir Starmer, on the other hand, is determined to avoid such a fate, wrapping the Labour party (literally) in the Union Jack and signalling a deep emotional attachment to the monarchy. He even ordered in his MPs to abstain on a bill authorising the security services to commit murder and torture without legal repercussion – for fear of appearing ‘patriotically’ suspect.

Don’t sing ‘Rule Britannia’

But the interesting thing about The Lion and the Unicorn is that the patriotism it pays homage to is not the same patriotism that the Labour party in 2020 is seeking to identify with. Starmer’s conference speech was trailed to the media as rebranding Labour as the party of “flag, forces and family”. Blue Labour, the Labour faction which heralds ‘conservative socialism’, is committed to the triad of “family, faith and flag”. There is a subtle difference if you look carefully.

However, Orwell explicitly rejects the idea that the patriotism of the English working class revolves around these cornerstones. Its patriotism is “profound” but “the working man’s heart does not leap when he sees a Union Jack”. Rather, there is an ingrained hatred of war, militarism and uniforms, and – outside of war – a widespread refusal to join the army even in times of mass unemployment. “So deep does this feeling go” writes Orwell, “that for a hundred years past the officers of the British Army, in peace time, have always worn civilian clothes when off duty.”

In Orwell’s view, “all the boasting and flag-wagging, the ‘Rule Britannia’ stuff is done by small minorities”.

Of course, The Lion and the Unicorn was written nearly 80 years ago. Attitudes may have changed – witness the ubiquitous uniformed soldiers before kick-off at football matches and the pressure of conformity about poppy wearing. But Orwell made a crucial distinction between nationalism or jingoism and patriotism.

It is a similar story when it comes to religion or ‘faith’ as modern-day adherents like to call it. “The common people” says Orwell, are not puritanical and “without definite religious belief”. Though there is a “deep tinge” of Christian belief, in terms of organised religion, the Anglican Church is mainly the preserve of the landed gentry and the Nonconformist sects only appeal to minorities.

Defining patriotism

So what then is patriotism? According to Orwell, it is a purely defensive attitude and protective of a particular way of life. “It is bound up,” Orwell writes, “with solid breakfasts, gloomy Sundays, smoky towns and winding roads, green fields and red pillar-boxes.”

Mercifully he soon becomes less misty-eyed and then makes an astute point about English culture which, I believe, is still true decades later. The English – despite the contentedly defeatist attitude of much of the liberal-left which sought salvation, oddly, in the neoliberal European Union – are not irredeemably conservative, capitalist or right-wing. This fatalistic stance should have been exploded by the 2017 election in which a left-wing Labour party gained nearly 42% of the vote in England. But there is, Orwell says, a definitive privateness about English life:

The liberty of the individual is still believed in, almost as in the nineteenth century. But this has nothing to do with economic liberty, the right to exploit others for profit. It is the liberty to have a home of your own, to do what you like in your spare time, to choose your own amusements instead of having them chosen for you.

Undeniably, this feeling can be used to fuel a seemingly endless housing boom – rooted in the comfort induced by seeing the value of the house you own continually rising and in viewing your home as a haven against the world. But it can also be – and would be by a serious Left – utilized in the opposite cause. In a country where millions have scant security as private tenants, and are being evicted as we speak, and where wealthy individuals and businesses buy up hundreds of flats and houses for no other purpose than renting them or selling them on, “the liberty to have a home of your own”, but not necessarily one you are free to sell, is the kind of aspiration the Left should champion. In Marxist terms, we live in a world where ‘use value’ (the function of a house or flat to provide security, stability and shelter) has become the slave of ‘exchange value’ (seeing them as simply ‘units’ to make money from). That is why Orwell could proclaim a fervent belief in the ‘liberty of the individual’ but also advocate (in the political programme that accompanies The Lion and the Unicorn) the abolition of private land ownership in urban areas – and see no contradiction between the two.

Orwell the Red

Indeed, what is striking about Orwell ‘patriotic socialism’ is that the socialism involved is of the deepest red. The second half of The Lion and the Unicorn is devoted to espousing an “English Revolution” that would set free “the native genius of the English people”. Railways, banks, major industries and land would all be nationalised (Orwell recommends allowing private ownership of land of up to 15 acres in rural areas, but as seen above, would completely abolish private land ownership – and thus landlordism – in town areas), incomes would be restricted to a ten to one variation, the House of Lords abolished and private schools flooded with state-aided pupils or simply closed. Orwell even envisages the stock market being torn down!

However, it is interesting that despite Orwell’s intense anti-Communism, his economic beliefs do not seem vastly different in their fundamentals. Orwell defined himself explicitly as a “democratic socialist”, not a Communist, and clearly saw great danger in vesting political power in an all-seeing political party, but in economic terms, did not see any alternative to state socialism.  “From the moment that all productive goods have been declared the property of the State,” he writes, “the common people will feel, as they cannot feel now, that the State, is themselves.” Despite fighting in an anarchist/syndicalist revolution in Spain, and with a Trotskyist battalion, just four years previously Orwell seems to have imbibed none of their critique of state socialism, nor their advocacy – indeed living example of – workers’ control.

Nonetheless, by comparison with Orwellian socialism, Corbyn’s mellow social democracy appears – notwithstanding the hysteria it generated – quite tame. And Blue Labour, which might claim to be the inheritor in the Labour party of the Orwellian vision, seems oblivious to his decrying of the party’s “timid reformism”. In aligning with – at best tolerating – insipid centrist leaders like Starmer and Miliband there is an all too common wilful blindness to Orwell’s radical side.

Ashamed of their own country

But the incongruous thing – and probably a large reason Orwell is claimed by divergent political philosophies – is that he combines a frankly revolutionary socialism with unvarnished contempt for left-wing intellectuals. Orwell berates the “shallow leftism” of intellectuals and the “mechanically anti-British attitude” which was de rigueur on the radical left of the time. Much of the contempt stemmed from widespread left-wing support for Stalin and the Soviet Union. Orwell, by contrast, had seen Stalin’s inherent brutality – and well as his anti-revolutionary stance – at first hand during the Spanish Civil War. However, some of the critique transcends the circumstances of the time. In The Lion and the Unicorn and elsewhere (for example the essay ‘Notes on Nationalism’), Orwell develops the idea of “transferred nationalism” – taking all the emotions, affection and loyalty that might have been attached to your own country and simply directing them somewhere else – the Soviet Union, primarily, in his era. Despite its pretentions, this mental transference gets the protagonist no closer to “genuinely internationalist outlook”.

The same transference was in evidence during the EU referendum campaign and the endless negotiations that followed. Implicit in much of the liberal-left embrace of the Remain cause was the idea that virtually everything that made life bearable in England came from ‘civilised’ European influence, without which the country would descend into a corporate free-loading, racist hell-hole (ironically, in devoting most of their energies to taking down Jeremy Corbyn – and thus helping Boris Johnson – liberal Remainers ensured this vision would come to pass). The idea that a home-grown socialism was even possible was dismissively rejected as a contradiction in terms.

Thus, Europe (the institutions of the EU) became a purely benign endeavour, without conflict or desire, pitted against a country whose temporary, austerity-wreaking rulers (a trait they shared with the EU) were seen as representative of its eternal character. But genuine internationalism involves the recognition that all countries (including pan-governmental entities and repressed or colonised nations), have their own elites and plebeians, their own fractures between capital and labour, their own bigots and mobs, and their own interests which leaders will attempt to pursue.

Orwell, notwithstanding his unabashed patriotism, is aware of this. Thus, in his treatment of India (at the time part of the British Empire) he can recognise both that Britain, out of fear of trade competition and a desire to make rule easier, has artificially held back Indian development and that, partly as a consequence of British domination, the average Indian suffers most keenly at the hands of his fellow-countrymen. “The petty Indian capitalist exploits the town worker with the utmost ruthlessness,” notes Orwell, “the peasant lives from birth to death in the grip of the money-lender”. That kind of analysis seems strangely sophisticated today.

Return of the ‘drowsy years’

However, in one important way, Orwell’s essay is rooted in its own time; a time when Britain (and its Empire) seemed the only obstacle to the total domination of Nazi Germany. He likens Britain to a family with the wrong members in control – the dividend drawers, the landed class, the “functionless” owners of industry – who are holding back the intelligent and capable. The ruling class, in Orwell’s view, are not corrupt so much as “unteachable” and mired in self-deception. While Nazi Germany has the SS man, we have the rent collector.

War, said Orwell, was the greatest of all agents of change. It speeds up long-term processes and brings previously unacknowledged realities to the surface. In the midst of the Blitz, the “drowsy years”, as Orwell encapsulated the 1930s, were well and truly over and it was possible, necessary actually, to become both revolutionary and realistic.

But now the dividend drawers, the owners of industry, the tax evaders are back, if they ever really went away. Rent is the (anti)-lifeblood of the economy. Students are cajoled into returning to halls of residence so that they can pay rent to the owners. The spectre of city centres devoid of commuters petrifies the owners of commercial and residential properties who see their rental streams drying up before their eyes. Hedge fund managers and bankers are exempted from quarantine regulations because of their alleged contribution to the economy. The company directors of Orwell’s time who try and dodge “Excess Profits Tax” have been superseded by a multi-trillion dollar tax avoidance industry orchestrated by banks and green-lighted by governments.

The outright treachery that frightened Orwell has been replaced by ordinary corruption. The reverence for the impartiality of the law even if it is unjust, which Orwell believed characterised England, now pales before the staging of show trials of those who embarrass the rulers of the world. The “right to exploit others for profit” is deemed sacrosanct while a bill allowing MI5 agents to murder British citizens with impunity is waived through the House of Commons with the connivance of the Labour party. The drowsy years are back with a vengeance and nothing seems likely to jolt us back into attentiveness.

The Mystery of the Post-War Boom – or why has economic growth been falling for over half a century?

According to a recent study, economic growth among the industrialised countries of the world has been declining for around sixty years.

“… contrary to what is widely believed,” the report from Geopolitical Economy Research Group (GERG) at the University of Manitoba in Canada states, “this [post-war economic growth of the industrialised North] has fallen continuously, with only brief and limited interruptions, since at least the early 1960s.” The trend includes all major Northern economies “without exception” and shows no sign of ending.

The study includes the usual suspects – the US, Germany, the UK, Japan and France – as well Australia (which isn’t in the Northern hemisphere admittedly) and 10 other countries.

Today’s “meagre” growth rates of 3 per cent are treated as evidence of economic success, but fifty years ago – when rates of 6 per cent or more were common – such an economic performance would have been greeted with “alarm and despondency”, the report’s author, economist Alan Freeman points out.

The erroneous widespread belief the report aims to counter is that either economic growth started falling after 1973 (i.e. a decade later than the reality) or – as in common on the Right – that the nadir of the strike-ridden 1970s was banished by the successful attempts of Thatcher, Reagan and others to revitalise Western economies.

And although the report doesn’t speculate as to why economic growth has fallen so drastically it does affirm the original cause – “an historical event, the Second World War, which brought in its wake one of the greatest and most prolonged economic expansions since the Industrial Revolution”.

The post-war enigma

As can be seen below, there are various explanations for the post Second World War boom, an economic expansion which few sentient people deny occurred. The US economy more than doubled in size between 1948 and 1973, while the UK, West Germany and Italy grew fourfold in the same period and the Japanese economy swelled tenfold.

However, the boom is treated very differently on the Left and the Right. For the mainstream Left, it was the consequence of a peculiarly benign set of economic policies, or in the words of the late economist Andrew Glyn, “a unique economic regime”. The so-called Golden Age of capitalism was built on collective bargaining with strong trade unions resulting in wage growth and rising effective demand, restrictions on finance which funnelled investment away from speculation and into physical assets (resulting in rising productivity) and an international economic architecture (the Bretton Woods system) that fixed exchange rates, stopped currency speculation and ensured global economic stability.

For the Right – or those elements on the Right willing to deal with the facts – the post-war boom had nothing to do with correct policies or regulations. Indeed those policies – for example high corporate and personal levels of taxation – may have ‘worked’ in spite of themselves and were exposed as impediments to growth in the stagnation years of the 1970s.

Rather the post-war boom was the result of an inherent, and frequently unnamed, economic vitality that gradually evaporated as the second half of the 20^th century wore on. This perspective can be seen in reactions to the inconvenient fact that, although Margaret Thatcher radically changed British society in innumerable ways, she left the rate of economic growth virtually untouched. Or in scepticism towards the advocates of a Basic income.

However, the debate about the post-war boom usually takes as it as read that it concerns capitalist economies only – GERG’s 16 country list solely comprises industrialised capitalist economies. But, there are, in fact, good reasons for including the communist Eastern bloc and the former Soviet Union. Although reliable economic statistics for the Soviet years are hard to come by, the broad outlines are widely accepted – the Soviet Union enjoyed strong economic growth for two decades after World War Two but this growth petered out in the mid-1960s.

Such was the economic optimism, Soviet leader Nikita Khrushchev boasted in 1961 about leaving the United States far behind in industrial and agricultural output – and was taken seriously. This boasting was based on the fact that output had shot up, towns and cities had been rebuilt, life expectancy had doubled and many infectious diseases conquered. And the ‘socialist’ system was responsible.

Unfortunately, from the mid-1960s all this went into reverse. Health spending was cut, mortality started rising (by the end of the 1980s the USSR had the worst mortality rates of any industrialised country anywhere in the world) and deaths from heart disease, cancer and respiratory diseases started increasing. Indeed, in 1976, a French demographer, Emmanuel Todd, predicted the collapse of the Soviet Union on the basis of rising infant mortality. The Soviet state stopped collecting these figures in 1974.

So this should not be mistaken for a paean of regret about the unfairly maligned ‘socialist’ economy in the Soviet Union. The Soviet system that emerged from the Second World War was a full ripe Stalinist one, based on terrible repression – the secret police had executed over 680,000 people in 1937-8 alone. Although direct repression significantly abated after Stalin’s death in 1953, this was still a police state and, moreover, one based on the expropriation by a small ‘nomenklatura’ of the wealth created by the mass of people. This nomenklatura – comprising about 1 million people or 0.4 per cent of the population – even had their own health service which was, unsurprisingly, vastly better than the one ordinary people had to rely on. And this property-hungry elite, incidentally, was first in the queue to buy up all the Soviet-era assets when ‘communism’ collapsed in Russia in 1991 and mass privatisation was rushed through by Kremlin decree.

The idea – common in the West after 1991 – that the Soviet system was, economically, profoundly dysfunctional and inefficient, may also have been true. But what was also true, the evidence strongly suggests, is that this dysfunctionality was hidden by – or perhaps overwhelmed by – the vigour of the post-war boom.

 However, if this is true – and we should include the Soviet Union in any analysis of the post-war boom – then none of the explanations for its existence quite fit:

1 Reconstruction after the Second World War made an economic boom all but inevitable

This is the explanation most favoured by the Right because it excludes government policy and a strong labour movement from any credit for what ensued. The immense physical destruction caused by the six years of total war, the argument runs, guaranteed robust economic growth once peace had returned because so much work needed to be done rebuilding cities and repairing physical infrastructures.

This account makes sense for many post-war economies such as Japan (whose GDP grew at 7.8% between 1950 and 1973 but at only 2% from 1973 to 2008), Germany and Italy. It is also very plausible for Western Europe and, to a degree, Britain. And it most certainly works for the territory of the ex-Soviet Union which had been devastated by Nazi invasion at the loss of 20 million lives.

But for other economies which grew strongly in the post-World War Two decades, this rationale is far from convincing. The United States enjoyed robust GDP growth after the Second World War and, although it played a decisive role in its outcome, internally the country was untouched by it. So there was no rebuilding to be done.

True, the United States was pivotal in the rebuilding efforts of other countries – in Europe through the Marshall Plan and in the case of Japan – but were those endeavours sufficient to set its own economy on an upwards trajectory for around two decades? In recent years US companies have made huge investments in China and the country’s largest corporation, Walmart, sources 80% of its products from China. But these connections have not shown up in US GDP growth.

There were also countries in Europe – namely Portugal, Spain, Sweden and Switzerland – that enjoyed strong post-war economic growth (and in the case of Spain caught up with the rest of Europe) despite not being involved in the Second World War.

Moreover, the basic premise here – that economies emerging from war always experience impressive economic growth – is dubious. In the years since the post-war boom there have been many devastating wars – wars of independence from colonial control and civil wars – but nothing to compare with the post-Second World War boom. To take one example, the countries of the former Yugoslavia endured a brutal four year civil war from 1991-95, but – despite the devastation – subsequent economic growth has only been marginally better than the EU and global average and pales in comparison with the 20% growth rates achieved in Europe in the post-1945 years.

2. A benign policy environment aligned with powerful labour movements

In contrast to the Right, the mainstream Left (by which I mean Left Keynesians and some Marxists) draws attention, not to the physical environment, but the policy one. Free market capitalism had been thoroughly discredited by the experiences of the 1930s and the rise of Fascism and what emerged from the wreckage of World War Two was a regulated, managed capitalism. There were heavy restrictions on fractional reserve banking – the practice of banks’ inventing money by lending out a multiple of their capital assets – and a stable international exchange rate which nipped currency speculation in the bud.

This was allied with the acceptance by private owners and capitalists of strong and unyielding trade unions that had to be negotiated with. Welfare and health spending, in conjunction with pension provision, also increased. As result, real wages rose impressively, and because workers were also consumers, effective demand sustained an economic boom. And unlike today, this auspicious economic environment ensured productivity – output per worker – rose healthily, reaching 5% a year on a regular basis. All this without, it seemed, the downside of capitalism: there were no significant recessions for three decades after World War Two.

There are problems with this explanation even if the Soviet Union is not included. These are ones of timing. According to GERG’s figures, economic growth started falling around 1963 or ’64 – well before this benign policy architecture began to be dismantled. The ‘Nixon Shock’ – the refusal of the US allow the conversion of the US dollar to gold, thus effectively ending the Bretton Woods system and paving the way for free floating currencies, took place in 1971. Efforts to “zap labor” (the phrase belongs to Arnold Weber, the head of Nixon’s Prices and Wages Board) gestated in the 1970s but began in practice – in the United States under Reagan and the UK under Thatcher – in the 1980s. And in Germany, hostility to organised labour only really materialised (in the form of the ‘Hartz’ labour market reforms and wage repression) in the first decade of the 21^st century.

However, include the Soviet Union, and the ‘unique economic regime’ explanation becomes even less tenable. The Soviet Union was not in any sense a consumerist society and its economy did not depend on effective demand on the part of consumers. Wages were deliberately supressed under Stalin – until the 1950s they were lower in real terms than they were in Tsarist times. They rose somewhat in the post-Stalin era but the economy cannot be said to have been driven by consumer spending. Nor was there any finance sector in the Soviet Union to regulate. There was no need to ensure banks invested in the productive economy in Soviet-era Russia because private banks did not exist. But the country still experienced a post war economic boom.

3. The decline of profitability

This third explanation is definitely less in vogue that the first two – it is far from universally supported even among Marxian economists – but it deserves elucidation nonetheless. According to Marx, ‘the fundamental law’ of capitalism is for profit to decline – profit in the sense of the financial return on the amount of capital initially invested. This is known as the ‘Tendency of the Rate of Profit to Fall’ – TRPF for short. Barring certain counter-veiling tendencies – such as the opening up of new markets – this will deplete economic growth and lead to a recession. However, contrary to myth, in Marxist theory this is not a terminal problem. If the resulting bust is allowed to play itself out and companies permitted to go bankrupt, the stage is set for a new boom. In Marx-speak, ‘capital value’ has been destroyed and so profitability spikes again, inaugurating a new cycle of economic expansion.

According this group of Marxists, this is exactly what happened in the aftermath of the Great Depression. In the laissez-faire atmosphere of the 1930s, businesses were allowed to go the wall and unemployment to rise inexorably. But this prior destruction is exactly why conditions were ripe for prolonged economic expansion after the Second World War.

However, given the consequences of allowing the Great Depression to unfold without ameliorative action – political radicalisation, the rise of Fascism and World War – governments since then have been determined to stop all economic downturns wreaking the havoc they are bent on. They have been usually been washed away – as in 2008-9 – with bail-outs, stimulus programmes and subsidies. As result, economic downturns have not been nearly as devastating as in the 1930s. But they have also not paved the way for any subsequent boom – precisely because ‘capital value’ has not been destroyed to any great extent.  So economic growth has gradually and inexorably declined, an erosion which, in Freeman’s words, “shows no signs of ending” (the one partial exception since the 1930s to government action arresting economic downturns may well have been the recession of 1980-81, which was exacerbated by the hiking of interest rates in the US and UK and led to a quarter of UK manufacturing industry being wiped out. Coincidentally it was followed by an “8-10 year blip” in the trajectory of slowing growth).

The chronology problems in the second explanation are manageable here. Although there are disputes among TRPF economists about precisely when in the post-war era profit began to fall, one, Michael Roberts, places the tipping point in the mid-1960s.

However, this explanation applies to capitalist societies. That the Soviet Union was not ‘socialist’ is not in dispute. A self-selecting elite ruled over the mass of society, denying most people any democratic rights or control over their work. It is not widely appreciated how unequal the Stalinist Soviet Union was – a ruling class enjoyed a materially comfortable existence while, in anti-Stalinist revolutionary Victor Serge’s words, “the rest of the population, 85 to 88 per cent lives in primitive conditions, in discomfort, in want, in misery”. Such a society fully deserves to be described as accumulative – a small minority exploited and benefitted from the labour of others. But it wasn’t actually capitalist. Investment decisions were not based on the level of profit they would accrue.

That the ‘law of the tendency of the rate of profit to fall’ did not apply to the Soviet Union can perhaps been seen by what transpired when it collapsed. As noted above, the law is cyclical – if capital value is decimated, then profitability is restored and economic expansion can begin anew. But in 1991-94, in the transition crisis in the former Soviet Union, the conditions for the destruction of capital value were undoubtedly met. Production “fell by almost half in the 1990s” and 80% of the 27,000 Russian state enterprises were privatised. Life expectancy endured the largest falls in modern history outside of war and natural disaster. But Russian economic performance in that decade ranged from terrible to mediocre.

So if gross profit – as opposed to profit share – did not spike in the ex-Soviet Union in the 1990s, one can be fairly sure that rising profit expectations were not behind the economic boom that undoubtedly occurred there in the post-war years.

What does it all mean?

According to the GERG report’s author, Alan Freeman, the findings have “profound implications”. The high growth of the post-war years was the result of a “long historical process”, rather than wise policy decisions, he affirms. The other side of the coin is that the protracted decline of economic growth since the mid-1960s cannot be undone by reversing government policy and replacing austerity with fiscal and monetary stimuli. Such policies may be urgently necessary socially, but they will not transform the economic environment of ‘advanced’ industrialised countries.

Rather – and I’m extrapolating here – if the post-war boom was the consequence of epoch-making events such as the Great Depression and World War Two, for any new boom to occur similarly momentous phenomena have to precede it.

And we have every reason for not wanting this to happen. Firstly, because deep economic downturns and hugely destructive armed conflict are intimately connected – you’d have to try very hard not to see a causal link between the Great Depression and World War Two. Secondly, because the world cannot endure a repeat of the high economic growth of the post-war decades. We are already in a situation where GDP growth levels are causing CO₂ emissions to rise year on year when they have to fall drastically and rapidly if a future of submerged cities, huge refugee flows and mass hunger is to be mitigated. And this is happening when the growth levels of industrialised nations are – in historical terms – insipid. The annualised growth of OECD countries (35 industrialised countries, excluding China and India) currently stands at 2.4%. The growth rate of GERG’s 16 Northern industrialised countries is probably just over 2 per cent. Caveats apply about how growth has been outsourced to the Global South and global trade, rather than economic growth per se, drives climate change. However, the “routine” growth rates of the 1950s – 6 per cent and higher – are unthinkable even if, though some miracle, they are achievable.

Logically, therefore, the requirement is for an economic system that provides stability and material assurance to people’s lives whilst at the same time keeping growth at negligible levels. Regardless of the visible effect of austerity policies, declining economic growth clearly has human consequences. Even in the Soviet Union, high economic growth spurred the rebuilding of cities and rising health spending, while economic stagnation produced its opposite.

Therefore the necessity is for an economic system that retains the socially benefits of high and equitable growth without relying on such growth. Such a system will not be capitalism – it will be post-capitalist – and it will negate capitalism’s fundamental characteristic: the accumulation of profit which is then used to reinvest in new profit-making schemes, and so on ad infinitum, thus turning the system into a perpetual growth machine.

We may be nearer to that outcome than we think. The ebbing of the post-war boom in the Soviet Union was accompanied by rising mortality and declining health spending. In the mid-1970s, its demise was predicted, though at the time few were listening, by someone who noticed that infant mortality figures were going up. And in 25 years’ time, that prediction came true.

And, now in the heartland economies of the industrialised North, life expectancy is falling. Granted, in countries such as Britain, this is intimately connected to austerity policies, but it is also apparent in the United States, a country that has shunned austerity, at least at the federal level. The question is, are we a quarter of a century away from the end of capitalism in its heartlands?