Back in the days when Ed Miliband was being criticised for dragging the Labour party too far to the left, political junkies seeking a guide to the new times would often be pointed in the direction of a tome entitled Varieties of Capitalism. Much-thumbed-through by the former Labour leader, this groundbreaking collection of writings made the case that Anglo-American capitalism, with its emphasis on a small state, low taxes and a deregulated market, was not the only way to run a capitalist society. In Germany for example, they did things differently.
That was only a few years ago, but it seems like much longer. As the roars of a tumultuous sold-out Labour party conference continue to ring in the ears, the Conservatives are now assembling in Manchester in a state of high anxiety. For the question “Which variety of capitalism?” appears to have been replaced by an altogether starker choice to be directed at voters: “Capitalism or socialism?”
At Labour’s conference, Jeremy Corbyn declared that capitalism now faced “a crisis of legitimacy”. It was one that politicians had shamefully failed to address, even after the system’s failings had been exposed so glaringly by the global financial crash of 2008.
Rather than creating more prosperity for all, the commitment to unfettered free markets, deregulation, and the winding back of the state had left a huge mass of the population in insecure jobs, with declining real wages and without decent homes, while lining the pockets of a small and ever-richer elite.
“Now is the time that government took a more active role in restructuring our economy,” Corbyn declared. “Now is the time that corporate boardrooms were held accountable for their actions. And now is the time that we developed a new model of economic management to replace the failed dogmas of neoliberalism. That is why Labour is looking not just to repair the damage done by austerity but to transform our economy with a new and dynamic role for the public sector, particularly where the private sector has evidently failed.”
The privatised water industry was an example of free markets failing consumers, he said. “Of the nine water companies in England, six are now owned by private equity or foreign sovereign wealth funds. Their profits are handed out in dividends to shareholders while the infrastructure crumbles, the companies pay little or nothing in tax, and executive pay has soared as the service deteriorates. That is why we are committed to taking back our utilities into public ownership, to put them at the service of our people and our economy and stop the public being ripped off.”
The debate over whether free-market capitalism is generally for the good of all is one that most in the political establishment had believed to have been settled beyond any doubt, until very recently.
Since Margaret Thatcher and through the tenures of John Major, Tony Blair, Gordon Brown and David Cameron, the case for free markets, the idea of extending competition further into public services, deregulation and the lowering of business taxes was largely unquestioned until the last couple of years.
Since then however, Corbyn has not been alone in raising doubts. His predecessor, Miliband, wanted to intervene in the market to cap energy prices because he believed consumers were being taken for a ride. He was prepared to strike out and challenge accepted thinking.
In the EU referendum last June an electorate that many politicians sensed was stirring and seemed disillusioned used the vote on EU membership to demand change. When she entered Downing Street last July, Theresa May appeared sensitive to a changing mood, and promised to govern for those who felt ignored and left behind – a tacit acceptance that elements of the system were letting down the poorest in society. The Tory manifesto at the general election in June this year said that “we [the Tories] do not believe in untrammelled free markets” and declared that regulation was “necessary for the proper ordering of any economy”.
After Corbyn’s speech last Wednesday, May, clearly panicked by the Labour leader’s popular appeal among young voters and evidence that many of his policies – including renationalisation of rail and other services – have wide appeal, made a speech of her own. While she had raised some doubts previously, she felt it necessary to restate her party’s commitment to free markets.
May told a conference to celebrate the 20th anniversary of Bank of England independence over interest rates that capitalism “is unquestionably the best, and indeed the only sustainable, means of increasing the living standards of everyone in a country. And we should never forget that raising the living standards and protecting the jobs of ordinary working people is the central aim of all economic policy.”
The fact that a Tory prime minister felt it necessary to make such a statement showed one thing above all else: that the Conservatives now feel in great danger from a Labour leader who claims that his rejection of contemporary capitalism is not old-fashioned, but modern and the new mainstream.
“We all want economic growth; the real question is what type?”
The political debate in the UK seems again based on false choices between the public and private – and will get us nowhere. It feels like we’re stuck in a car circling a roundabout, arguing about which exit to take. I think we can do better.
First, the language matters. Markets are not a synonym for business. Markets are an outcome of the interactions between public and private sectors as well as organisations in civil society. It is the dynamic relationship between these actors that creates the economy, and indeed in this sense there has never been a “free” market. Free from what?
The state does not “intervene” in the economy. Policy is about actively co-creating and co-shaping markets. Adam Smith talked about the free market not as free from the state, but free from “rent-seeking”. Yet when policy is not ambitious there is more, not less rent (value extraction) in the economy.
We all want economic growth; the real question is what type? Growth has not just got a rate, but also a direction. Hopefully that direction will increasingly be towards “green”, as well as towards more inclusivity.
What we need is a more dynamic conversation about the direction in which both public and private sectors can act with vision to co-invest in the challenges of the future, share both risks and rewards, and in so doing co-create new markets for the economy of tomorrow.
Professor Mariana Mazzucato
Director, Institute for Innovation and Public Purpose, University College London
“The capitalist system we know is dominated by huge, unaccountable, global banks and corporations”
For centuries now, capitalism’s appeal has rested in its promise of control. Unlike with societies of the past, in capitalism no one is supposed to be stuck in a rank given at birth. Instead, we all make our own choices – how hard to work, what to work at, how to balance our working lives and our private lives – and shape our own futures.
The problem for capitalism is that it doesn’t feel like that any more. The capitalist system we know is dominated by huge, unaccountable, global banks and corporations. Add to that eye-watering and ever-increasing inequalities of wealth, and the suggestion that capitalism empowers us, rather than enslaves us, becomes an ugly joke.
So, yes, capitalism is at a crossroads. Its advocates must either find an entirely new argument to defend it, or work out what it is in the system that needs to change for the promise of real control to be delivered.
When anyone properly reflects on that choice, I believe they will realise that an economy that provides people with the sense that they really matter in the world remains the right ambition. But they will also note that building that economy demands radical and far-reaching action. Such action should start by limiting the power of unaccountable vested interests, from banks to tech companies, strengthening the hand of those whose work creates the wealth, and protecting our ever more fragile environment. It can be done – capitalism has adapted in the past – but time is running out.
Chief executive, New Economics Foundation
“The idea of socialist governments running swaths of the economy seemed to be confined to history”
Yes, we seem to be at a crossroads for capitalism in this country. There is the clear choice between Jeremy Corbyn’s 21st-century socialism or remaining on the path, albeit with a few bumps in the road, of appropriately regulated free markets and sound management of the public finances. Without exaggerating the case, this is a position few of us thought possible until recently.
The postwar British economy was run along fairly consensual lines until the election of Margaret Thatcher in 1979. Faced with persistent economic problems, the Thatcher government introduced the necessary 1980s reforms. They included radical trade union legislation, competition- promoting privatisation, the abolition of penal tax rates and, above all, enabling free enterprise to provide rising prosperity and jobs. Coupled with an emphasis on sound public finances, they proved remarkably successful. Significantly, the “enterprise economy” became mainstream, supported by New Labour as well as the Conservative party. The idea of socialist governments running swaths of the economy seemed to be confined to history.
The financial crisis, however, undermined many voters’ faith in capitalism, while austerity, so necessary to restore the public finances, has been unpopular. So it is, perhaps, not so surprising that the capitalist “mainstream” has been challenged by Jeremy Corbyn’s alternative economic vision, including, as it does, competition-destroying renationalisation, rent controls, higher spending, higher taxes and significantly higher public sector borrowing (to be paid for by future taxpayers).
Advocates of the benefits of free markets as guarantors of jobs and growth must rise to Corbyn’s challenge.
Economic adviser, Arbuthnot Banking Group
“Poll after poll shows that party policies under the leadership of Jeremy Corbyn have popular support”
Fate may finally have caught up with unfettered free market capitalism, which has managed to duck the blame for longer than should have been possible. Swaths of Britain have for some time been crushed by the ravaging effects of this economic system: falling wages, rising costs and work insecurity, a strained welfare state, slashed public services, stalled growth, lag-behind productivity and hollowed-out communities. The economic crash of 2008 followed by brutal austerity cuts spread the pain and damage wider, but still opposition to this system had no parliamentary political home. A chunk of this rising despair was last year delivered to the wrong address, with Brexit.
Now the Labour party has revived its fortunes by tacking left and, in doing so, catching the prevailing wind of a population hungry for big change. Poll after poll shows that party policies under the leadership of Jeremy Corbyn have popular support: from renationalisation of rip-off energy and rail companies to raising taxes for the highest 5%, to increasing the minimum wage, abolishing tuition fees and introducing free school meals and rent controls.
Some Tory MPs are starting to comprehend the levels of despair and depths of the problems faced in the country. But with any growing awareness must come only growing panic, since the sort of system change required to address those problems simply isn’t in Conservative party DNA.
There are moments when the political tide turns – and we are coming alive to the idea that we may now be in the midst of such a shift, moving inexorably towards a leftwing platform, one now at home in the Labour party.
“If capitalism here is at a crossroads, it’s more likely to stumble hesitantly straight on than to turn sharply left or right”
Seen from space, capitalism seems to be ticking along quite nicely. Globally, at least, the markets and growth they promote have pulled millions out of absolute poverty. Zoom in, though, and the picture is more worrying – and not only in those post-colonial nations whose resources continue to be exploited by unscrupulous businesses and the kleptocratic despots and pseudo-democrats they rely on. Even in developed countries, the belief that things can only get better and that a rising tide lifts all boats is increasingly being exposed for what it is – an assumption based on a kind of capitalism constrained by unions and governments, as well as by technology.
Thanks to technological progress, the decline of organised labour and politicians who think the easing of those constraints would promote faster growth, capitalism is failing to generate social mobility and even basic welfare provision for those who need it most. But the extent to which that is the case varies considerably between countries, and that comes down to political choices. Britain has always sat somewhere between the more managed, corporatist capitalism of, say, Scandinavia, and the devil-take-the-hindmost, liberal version practised in the US.
The alternatives offered by Corbyn and May, then, are neither so stark nor so unfamiliar as they seem. If capitalism here is at a crossroads, it’s more likely to stumble hesitantly straight on than to turn sharply left or right, whichever party wins the next election.
Professor of politics, Queen Mary University of London
“The international story is one of orderly retreat from full-blooded globalisation and unrestricted free trade”
Capitalism v socialism debates are an anachronism. For the basic economic story of Thatcher tempered by Blair has not changed much in recent times: a regulated market economy, with, by historical standards, a big state and a public sphere stressing equality and individual rights. (Despite welfare cuts we spend 14% of GDP on social security, twice the level of the mid-1970s.)
The financial crisis and the austerity it required has belatedly nudged opinion a bit to the left: income inequality looms larger, and more people now want taxes increased to allow for higher spending (48%) than want tax and spending levels to stay as they are (44%). But that compares with 63% who wanted higher taxes in 1998.
Moreover, the unpopularity of the private utilities is just a mirror image of the unpopularity of the old nationalised industries and doesn’t signify a lurch to the left. Second, the international story is one of orderly retreat from full-blooded globalisation and unrestricted free trade (see Brexit) as the losers in western societies use their votes to demand more protection. Finally, surely the more relevant variation on left v right is the argument about how to better regulate the new digital oligopolies.
Director, Policy Exchange and author of The Road to Somewhere
“The right’s recent political dominance has obscured the fact that capitalism has never been unchallenged”
Capitalism is always at a crossroads. It’s always in the interest of whatever force is currently on the up to claim it is hegemonic, and the right’s recent political dominance has obscured the fact that capitalism has never been unchallenged.
It underwent severe crises and challenges in 1848, 1917 and 1929. It had periods in which it might not have been dying, but definitely looked a bit peaky, in the 1970s. Although in the global south and the former communist countries it is on the up, the financial crisis has, likewise, been a challenge for capitalism.
It may be that in the long run, we look at Margaret Thatcher’s decision to use the proceeds from right to buy not to build a new generation of social housing but instead to plug the deficit as the vital moment in the long death of British capitalism. Or perhaps we’ll see the attempt by Tony Blair and Gordon Brown to inject a measure of compassion into the Anglo-Saxon model as the decisive turn that saved capitalism.
In any case, it does seem as if this particular crossroads might be a vital one for British capitalism. Does the government heed the calls for greater investment in the public realm and take action to create another generation of house-owners, or will this particular crisis prove its last? It’s too early to tell.
Special correspondent at the New Statesman
“In 2017, the fastest growing economies are for the most part not free-market democracies”
Globally it’s not looking good for free-market capitalism. The rise of China belies the view that a state-led strategy will always fail. The global financial crisis exposed the perils of inadequately regulated markets. In 2017, the fastest growing economies are for the most part not free-market democracies.
But May eloquently set out the case last week: under open free-market policies life expectancy increases, infant mortality falls, absolutely poverty shrinks and disposable income grows, access to education is widened, and rates of illiteracy plummet. Who would not vote for this?
But the facts tell a different story. In the US, the period 1999-2013 saw an unprecedented reversal in life expectancy for white middle-aged men and women. Equally devastating is the rise in maternal mortality: from eight women dying for every 100,000 live births in 1987, to 26.4 in 2015. America’s victory in the cold war is not paying off for everyone.
Literacy is rightly at the heart of May’s list. It is crucial for a society of equal opportunity and enterprise. But alas, in the UK there is little evidence of “plummeting illiteracy”. Some 15% (or 5.1 million adults) in England are said to be “functionally illiterate”. This means they would not pass an English GCSE and have literacy levels at or below those expected of an 11-year-old.
May concluded that a free-market economy, operating under the right rules and regulations, is the greatest agent of collective human progress ever created. Clearly the rules are either not right or not working.
Global economic governance, University of Oxford