It was revealed today that the UK economy contracted by
0.3% in the final quarter of 2012. While
the government scramble to blame weather, global conditions, a bloated public
sector, immigrants and a sea of shirkers – today’s piece pins the failure of
the UK economy where it belongs: on Osbornomics and the ultimate victory of the
Neoliberal project.
What is Neoliberalism?
Neoliberalism is a
political and economic theory which rests on the basic premise that free market
capitalism is inherently good. Its
economic underpinnings are based on the views of the likes of Milton
Friedman, Alan
Greenspan and others in the latter half of the 20th
century. It beat out competing economic
and political theories such as Fascism, Socialism and Marxism to become the
dominant voice in politics and economic theory in the21st century.
It believes that the deregulation of finance and
industry results in economic growth and prosperity. It believes that free market capitalism and
democracy are inextricably linked. It
believes that there is nothing the public sector delivers which a competitive
private sector cannot deliver more efficiently.
It believes that GDP growth is an appropriate measure of national
prosperity. It believes that introducing
private sector behaviours, management and principles into the public sector
makes things better. It believes that
what is good for business is good for the economy, is good for the people.
It relies on institutions like central banks, the
IMF, the World Trade Organisation and the World Economic Forum to maintain political as well as economic
control and dominance.
The Rise of Neoliberalism
The project began in the Chicago School of Milton
Friedman. Whilst post war Britain was
busy building a welfare state to protect each citizen from the whims of
capitalism, Milton Friedman and this renegade rag bag of neoliberals were
seeking to promote the competing idea of free market capitalism and
neoliberalism.
In these early years, it was a hard sell for
democracies because of the outcomes of high unemployment, great and growing
disparity of wealth, social instability and so on. So Friedman and gang went to the governments
which didn’t have to worry about pleasing their electorate – the dictatorships.
In 1973, Marxist Salvador Allende was
ousted in a military coup by General Augusto Pinochet. Pinochet immediately established a
totalitarian regime and the neoliberal policies of the Friedmanites – he
oversaw the wholesale privatisation of the Chilean state. The initial results were an employment rate
of 20%. After 1976, the Chilean economy began to grow and a new Chilean middle
class was created. It was dubbed the
Chilean miracle, as the number
of cars tripled in 7 years and TVs, radios and other consumer items began to
appear in abundance.
However, for the poorest 40 % in Chile, things
went from bad to worse. In 1980, their
calorie intake averaged
1,751 per person per day. In 1970 it had been at 2,019 per day. By 1983, as the 80’s recession took hold of
the globalising economy, Chile (now entirely prone, its social security
removed) felt the hit. Unemployment
skyrocketed to 34.6%,
manufacturing output dropped 28% and the deeply
indebted privatised companies turned to the Chilean taxpayer for a bailout.
This story is the basic template for all stories
where neoliberal policies have been introduced.
The same story is behind the eviscerated economies
of the African continent. The western
banking system offered massive loans to post colonial African states to ‘develop’
their economies. During the crashes of
the 70’s the interest rates spiked and instead of relieving the debt, the IMF
instead loaned great sums as part of Structural
Adjustment Programmes. These
contracts made loans contingent upon the countries adopting neoliberal policies
of selling public services to private providers (mostly western), opening up
the natural resources for ownership and profit by external corporations, and
huge cuts in public spending. The
continent has never recovered. And why
would it? The process is an inexorable
vicious circle with the debt growing, the ability to repay shrinking, and a
largely impoverished, uneducated, hungry population disabled from turning
things around.
The key incentive of neoliberalism is that it
makes some people, really very rich indeed.
It’s victims are spread across the globe and largely disenfranchised.
Thatcher and the Dismantling of Britain
Neoliberalism has remained in check in the West as
democracy dictated that a full neoliberal project on the scale of Latin America
and Africa wouldn’t wash with a voting public.
Then came Thatcher.
The basic theories of Neoliberalism and
Friedmanite ideology were captured in The Ridley Report, which proposed
breaking up the public sector and it’s powerful unions. Margaret Thatcher proceeded to do just that, with
gusto during her 11 year premiership of the UK from 1979-1990
Today, it is almost impossible to recognise the
Britain that Thatcher inherited. To
discuss a state model based on actual 70’s Britain in 2013 seems like some sort
of socialist wet dream.
British Aerospace, Cable & Wireless, Jaguar, British
Telecom, British Steel, British Petroleum, Rolls Royce, British Airways, Utilities
such as water and electricity all
put up for sale. The state-built, subsidised
housing stock was put
up for sale. Prior to Thatcher, all
services and industry listed above were state owned, with wages and prices
controlled by a democratically elected government.
The adverts at the time encouraged working class
Britain to become members of the middle classes…own your homes, become a
shareholder, live the dream.
In the late 1986, it was the turn of the banking
sector to enjoy their liberation from state regulation with the so called Big Bang
the City was unleashed. Massive boom,
massive bust.
An End to Boom and Bust
Enter New Labour.
With the political left cast into obscurity by the promise of and end to
the class system and the opportunity for all to ‘make it’ – the Labour party
went Neoliberal. They felt they could
use the state to mop up the excesses of neoliberalism, to rescue those
inevitable losers of a win-lose game.
In reality, whilst temporarily preventing
immediate harms, this policy kept the true nature of Neoliberalism hidden from
the population.
This period saw the rise in state benefits being
applied to people in work. Whilst
corporations kept wages flat, they also inflated the cost of living. Rents, energy, food, water, travel costs –
all inflated. In response, access to
credit (debt) and state benefits for workers increased to maintain the pretense
of prosperity. In reality, the public
were experiencing a living standards increase paid for by a boom in state and
personal debt.
Whilst promising an end to boom and bust, New
Labour not only failed to prevent the ultimate fulfilment of the Neoliberal
project but perpetuated it. They
delivered a wave of privatisations and outsourcing of public sector functions
to the private sector.
It was new
Labour which launched and aggressively promoted the Private
Finance Initiative, an alleged means of capturing the best of the public
and private sectors. In reality, it was
a way of keeping debt of the UK balance sheet and privatising by stealth.
The government borrowed money at twice the price
it would have cost to borrow in its usual fashion (gilts 4%, PFI 8%) and
entered into costly 25-30 year mortgages with private corporations to build
things like hospitals and schools. By
2012, the PFI bubble has burst and hospitals and schools are going broke.
The Time Bomb Explodes
The
Financial Crisis of 2007/8 was a direct result of the neoliberal project as
outlined above. It all began with the
housing crisis in the US mortgage market.
The unregulated Financial Services Industry had been making a vast
profit from exploiting the rise in demand for credit. Mortgages were paid to anyone with a pulse,
because banks no longer cared if the debt was repaid. They made their money from selling the debt
on to derivatives traders who packaged these debts, turned them into an asset
called a collateralised debt obligation and resold them on the investors. They also then put an insurance policy on the
toxic ‘asset’ they had just sold, so that in the inescapable event that it
tanked, they would get a hefty pay off.
In this way, the traders made huge fees at each stage of the transaction
and felt protected against future failure of the assets. In reality, the whole house of cards was inevitably
going to collapse. The mortgage payers
defaulted eventually, the mortgage providers started to fail, the traders saw
losses and claimed their insurance, and finally the insurers collapsed and the
whole system came screeching to a halt.
In banking failures past, there has generally been
a revival of the principles of the left, one thinks of the building of the welfare state post
World War II, or Roosevelt’s
New Deal in the US which created the greatest period of growth the US had
ever known. Bankers went bankrupt or to
jail, and the tax payer won an increased level of social security.
However, in this modern day crisis the Neoliberals
out did themselves. Instead of letting
the banks fail, these former lovers of all things free market argued for state intervention. In
the UK, £2 trillion of tax payer’s money was siphoned into the Bailout, or more
than 3 times what the UK government spends in a year IN TOTAL. The taxpayer paid for the crisis. Neoliberalism had finally managed to insure
itself against its self inflicted boom/bust cycle…with the taxpayer as guarantor.
One might expect after this debacle that the
neoliberal project would have curled up on a corner and died of shame. One would be wrong. After a brief period of public apology, hand
wringing a promises never to make the same mistakes and an increase in
regulation – it was all quietly forgotten.
In fact, not only was it forgotten, but the coalition government pinned the whole sorry mess on a failure to follow neoliberal
principles. Rather than producing a plan for economic recovery caused by an unregulated runaway banking system, we're being sold a plan for recovering from a public spending spree.
Osbornomics says: The public sector is bloated, employee conditions are too extravagant, state benefits are too
high, there isn’t enough access to credit (debt), and corporations needed to
be freed up from all this red tape (regulation) to remain competitive.
Translation: sell more of the state, suppress
wages, reduce job security, and reduce the living standards of the poorest
people in the land and all will be well.
In the UK disability hate crimes have gone up by a
quarter, unemployment has doubled, the number of food banks has increased six fold, the number of homelessness
has risen 17%, 3 million people are unemployed, the rates of
bankruptcy have increased in retail, financial services, mining and energy. In the last three years, the number of working
people claiming housing benefit has increased by 86%.
What Osbornomics do to fix these problems? Cap housing
benefit at £26k a year, but do nothing about controlling the exorbitant rents
which result in the claims. For the first time, not increase social security
payments in line with inflation. Make it easier to fire
people and harder to appeal a dismissal. Give tax breaks to corporations and the most wealthy. Fail to add even one additional regulation to the Financial Services industry or put a single banker on trial for the crash.
Osbornomics is all about taking from those with
the least, to expand the wealth of those with the most. And while the wealth is hoarded at the top,
it cannot be generated at the bottom. It
stagnates.
It is absolutely no surprise whatsoever that the
economy is refusing to grow. Demand has
been killed off by the dismembering of the consumer base. Osborne is propping a failed economy up with the constant
pumping of new money into the system through quantitative easing. He is printing money and giving it directly to banks.
Osborne’s plan for recovery is like spotting that
the fuel is empty in your car and pumping petrol into the glove box. The glove
box overflows but the engine which moves the car still won’t start. He’ll be coming to you with the bill.
The Victory of the Neoliberal Project?
Until we find a new economic and political idea, or
at least allow a space for new ideas to grow, the neoliberal project will
continue. You need a history book rather
than a magic ball to foresee what happens next.
In the competition between civil society, democracy and human rights on
the one hand, and the advancement of the neoliberal project on the other – the project
always wins.
The winners, the 0.1% who own 81% of the wealth, will go for every last one of the 19% the rest of us
have. When they own the water we drink,
the food we eat, the heat in our homes, the schools we are taught in, the
hospitals we are treated in – that kind of leverage leaves us powerless. So we really do need to stand together,
realise our strength is in our numbers and in the provision of our labour,
without which the game is over. The
power is ours. If we would only realise
it, and call time on this insidious project which makes the rich richer, the
poor poorer and treats people and planet like units and commodities. It is time for a new idea.
Things You
Might Like
A must read, articulate explanation of the
failures of neoclassical/liberal economics and an overview of the exciting
things happening in economics outside this paradigm.
Excellent reading to get into the mindset of
neoliberalism and the almost contagious enthusiasm and optimism it emits. It is a compelling ideology and did not
dominate the globe for no reason.
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