The leaders of all three major parties in the UK have been making the case for "reforming" British capitalism, while at the same time digging the grave of the welfare state. What's going on?
There's been some interesting debates on libcom recently about reform and whether it's possible.1 With western capitalism seemingly stuck in perpetual crisis, and Europe set for an economic “lost decade” (of potentially more than a decade), it would seem rational for capital to change its overall game plan. There doesn't seem to be much immenent sign of that however, with administrations using austerity to finish the neoliberal dismantling of the postwar settlement – sweeping privatisations, benefit and wage cuts, eroding workers rights, threats of further anti-union legislation, etc. The only noticable concession to undoing some of the damage of the neoliberal period has been moves to "ringfence" retail and investment banking from each other, and that's to stop short of full separation and take place on a ludicrously relaxed timeframe, with the Vickers report recommending a deadline of 2019.
However, there have been some intimations and rumbles, here and there, that a rethink is needed. These are the voices of analysts and politicians, and so have constantly famed the issue in terms of the long-term interests of capital. But I think they show that at least a section of capital is concerned that the model of the last few decades is not going to serve their interests in the longer term.
There's been a lot of air blown recently in the UK about “reforming capitalism”. With the banks and the bankers that run them still deeply unpopular, and massive bonuses at the top undermining the government's mantra that “we're all in it together”, the leaders of all the parties have been setting out their stalls for reform. After a summer of riots, an autumn of strikes and a winter of gloomy economic forecasts, the parties want to exploit public disenchantment with the business-as-usual attitude at the banks and close off a disillusionment with capitalism before it becomes a problem.
First, lets look at the PM. Cameron's case is pretty vacuous by even his standards. In a recent speech he outlined a move towards a “popular capitalism” which consists entirely of a co-operatives bill and a pledge for more neoliberal policies to promote “open markets”. There's some vague comments about rebalancing the economy and rejecting Labour's “faustian pact” with the city, but it's hard to see how his “popular capitalism” is anything other than the same Thatcherite policies we've had in different colours since the end of the 70s. Especially given that the government has ruled out legislating on executive pay (while at the same time capping the pay of claimants). The push for co-operatives is mainly a vehicle for privatising services, by promoting public sector workers forming mutuals.
He's clearly been reading the writings of influential Tory backbencher Jesse Norman. His recent pamphlet Conservative Free Markets, and the Case for Real Capitalism makes for strange reading, but it's been getting a lot of traction amongst Tories. Essentially, he argues that Labour have had an unhealthily close relationship with elements within big capital (Serco, Lloyds HBOS, the banks, etc), and that this has created a situation of “crony capitalism”. This supposedly is out of sync with how capitalism is supposed to work (he never explains what “real capitalism” looks like, or when we had it). “Crony capitalism” has resulted, according to him, in a stagnating economy, economic crisis, runaway pay at the top, and a general social and economic malaise. What is significant is that he attacks “free market fundamentalism”, argues that the “the Efficient Markets Hypothesis is not Holy Writ; human beings are creatures of habit”, calls for curbs on high pay, and a debate on regulation of the market (“The official view of competition is a neoliberal one based on price competition and the possibility of market failure ... Among other things, this means that other social goals, and regional or local priorities, tend to be disregarded”). It's strange not just because he's a Tory, but because he attempts to absolve the Tory governments of the late 70s, 80s and 90s of responsibility for unleashing “free market fundamentalism” on society in a very weak way.
So whats the importance of all this? Most significantly it shows that even the right of capital are talking about not just the possibility of reform, but of it's urgent necessity. They're being listened to at the highest levels; only enough for Cameron to pay lip-service without any of the content, but the fact he feels this even necessary is significant.
These calls for (at least superficial) reform have been echoed by the leaders of the other political parties. Nick Clegg made some comments recently about his desire to establish “a John Lewis economy.”, with legislative support if necessary. If he wants what he says he does then legislation is essential. More employee share ownership throughout the economy on the John Lewis model is something of a leap of faith without it as John Spedan Lewis was one of those rare capitalists who decided to give away his capital.
Likewise, Labour leader Ed Milliband gave a speech to Which that laid out a “responsible capitalism”, basically a set of reforms consisting of cheaper rail fares, reforms to the energy market and a tax on bank bonuses. What this political direction might look like was revealed recenly when the Labour leader coasted on a storm of controversy over the massive bonus offered to RBS boss Stephen Hester.
Clearly the political class are concerned on some level. We can speculate as to why. As living standards fall, services are cut and the “efficiency of the private sector” continues to splutter away, the public will simply associate free-market capitalism with what is set to become Europe's “lost decade”. They're afraid that belief in the market and capitalist institutions to deliver for people's needs will disappear, and given that barely two years into this austerity administration we've had the biggest inner-city riots since the 80s, you can guess what they think the future might hold.
There are a couple of other points of interest relevant to the “is capitalism reformable” debate, and whether modifications will be made to the current neoliberal model.
The first is the increasingly large body of evidence that income inequality can be correlated with increases in a range of negative social outcomes. This argument is most strongly associated with Kate E Pickett and Richard G Wilkinson's book The Spirit Level, which came out in 2009. although as the authors point out, their book sits on top of hundreds of peer-reviewed studies.
The Spirit Level was surprisingly well received, and sold extemely well, outselling Barack Obama's most recent book and being lauded by both Ed Milliband and David Cameron. Cameron's enthusiasm for the book was supposedly what led to him junking the Thatcherite, “greed is good” rhetoric on income inequality.
The argument made is that the evidence shows that a broad range of social problems, including crime, mental illness, teenage pregnancy and obesity can be correlated with the level of inequality within a society. Using the top 23 established market democracies and UN data, they compellingly make the case that inequality is not only bad for a society, but also expensive. More unequal countries spend much more on prisons, the criminal justice system, mental health provision etc than their counterparts such as the Nordic countries. It is obvious what appeal this could have to political parties scrambling to position themselves as the best place to slash the deficit.
This appeal becomes all the greater given the authors don't necessarily argue for social democratic measures to reduce inequality, as might be expected. Crucuially, the authors don't spell out many policy recommendations in order to decrease inequality, let alone different social models to capitalism.
For example, the two most equal countries in their study are Japan and Sweden, Sweden with its extensive redistributive welfare system, and Japan with lack of inequality in gross, pre-tax pay have taken different paths to a more equal society. Similarly, when analysing US states, they conclude that the most equal are able to deliver equality without redistributive measures, but through more equal gross pay.
There has also been much chatter about the rise of a new form of state-capitalism in China, India, Brazil, and to a lesser extent, Russia. The Economist recently devoted much of an issue to the implications of the rise of this model, whereby states remain major shareholders in huge companies in emerging markets, whilst importing Western management and production techniques wholesale. One way or another, this state-capitalist paradigm is set to dominate a large part of the world for the foreseeable future, and with Chinese and Indian growth outstripping the depressed European and American economies, there's been much soul-searching about “surviving the Asian century”. The IPPR's report of that name recommends increased state investment in skills and innovation and a centralised, government investment bank on the model of Germany or the Scandinavian countries.
Reading the mainstream press, you can't escape the feeling that more and more voices are coming to the conclusion that the Anglo-American, neoliberal model is clapped-out and cannot deliver a future for Western capitalism in a changing world. Faisal Islam of Channel 4 articulated exactly this in a recent article.
That these voices are becoming more numerous and louder does not mean there will be any meaningful policy implications any time soon. Indeed, in the UK at least, the coalition look set on putting the final nails in the coffin of the postwar settlement by literally privatising everything. This will be dressed up as the “big society” in action, but that's for PR – you sound like a psychopath if you claim there's no such thing as society these days, and it won't sell well if you try.
But we shouldn't be surprised if around the middle of the decade, with the British economy grinding out meagre returns and the East surging ahead, voices saying that the entrenched model of capitalism needs a rethink get listened to by a broader section of capital. Whether that will involve concessions to the working class depends on whether we see an increase in the class fighting in its own interest. The responses have been piecemeal, but we live in interesting times. No-one could have predicted the Arab Spring or the growth of the Occupy Movement before the event. Who knows what the next few years might hold, and what concessions might need to be thrown out as a result. Increasingly, the means exist to sell reform as being in the interests of capital, which may provide capital with concessionary, rather than simply repressive tools to use if new struggles emerge.