Happy New Year! But not I fear a very prosperous one. This year in the UK a general election will have to be held probably in the spring. At the moment the two main political parties are wooing the British electorate by assuring them that they will be able to get the huge public sector deficit down without too many cutbacks in health, education, police and social services. Apart from that its business as usual with no great policy differences between the parties: what differences there appear to be are really ones of nuance rather than ones of great substance.
The brute reality is that post-election the British public will be entering a new phase of political and economic life heralded by three stark factors:
Firstly, there is a whopping £178 BILLION yes I’ll repeat that, a £178 BILLION deficit in the public finances stemming from bailing out the banks at the height of the crash in 2008. As Northern Rock, RBS, Lehman Brothers and the rest faced meltdown in autumn of 2008, the only thing or institution that separated them from catastrophe was the much derided and disparaged (at least in financial circles) good old state both here and in the United States (though Lehman Brothers did go down). The blood runs cold for almost all of us who have money and savings locked up in the High Street banks to read that in the febrile financial climate two-and-a-half-years ago the UK Treasury was within forty-eight hours of putting a halt to all withdrawals at UK ATMs. The effect of such a move in terms of confidence in the banking sector, which ultimately is simply based on the belief that not everyone will turn up to withdraw their money at the same time, would have been the equivalent of a financial apocalypse. What prevented such a scenario from coming to pass was state intervention, old style pump-priming in the form of the aforementioned £178 billion cash injection which propped up the banks, staved off imminent collapse and effectively took most of them into public ownership. That was good and no sane or reasonable person could argue against it. But deficits on that scale are unsustainable: Which leads to the second point.
We are about to enter an Age of Austerity. Public expenditure will have to be reined back to a far greater degree than any of our politicians (including David Cameron and the Conservatives) are prepared to own up to. Much talk is made of safeguarding front-line services in such as the NHS while finding savings and ‘efficiencies’ elsewhere. But the simple fact is that not only has every government in the post-war period talked of efficiency savings and still presided over increases in the public sector, but the figures being bandied about for savings amount to a fraction of all that debt. When pressed on this both Government and opposition spokespeople adopt rueful expressions and not much else because they cannot bring themselves to tell the simple truth in a pre-election period: that there are going to be savage cutbacks throughout the public sector. Or, if one part of it such as the NHS, is going to be protected this will have to be the expense of other parts such as defence or education. In a country such as Scotland where the public sector accounts for such a large percentage of economic life (in some cases amounting to 60% of the local economy) the impact of major cuts will be huge on jobs and services, purchasing power and those organisations comprising much of the voluntary and charitable sector dependent on public funding.
But it doesn’t end there. The UK population, after nearly two decades of virtually unregulated credit availability, has accumulated a combined level of debt equating to trillions (yes I’ll repeat that again TRILLIONS) of pounds. This has to be paid back and can only be at the expense of future consumption and deferred increases in the standard of living. It’s when you put together the Governments’ need to pay back its huge levels of debt with that of individual consumers that we can truly call the forthcoming period an age of austerity unprecedented since the mid 1970s.
Now the level of public and individual debt and the imminence of an age of austerity are widely acknowledged. What is not so widely appreciated is the third factor which is going to critically influence British political and economic life in the immediate future: The end of the consensus which prevailed in politics, economics, culture and social life from the early 1980s.
In a sense (though in very different circumstances) our current situation is akin to that which predominated in the late 1970s. Then, the consensus which had prevailed through most of the post-war period had been brought into great disrepute, was widely seen as having run its course and had become inadequate to deal with the multitude of problems besetting the British economy. Broadly speaking that consensus consisted of a strong element of public spending, particularly on the welfare state, a positive role for trade unions along with management, progressive and redistributive taxation, a large public sector including a substantial nationalised sector in what was described as a ‘mixed economy’ and an emphasis on the virtues of planning and collectivism.
Various names were given to this consensus including the social market economy, ‘corporatism’ and the usually pejorative ‘butskilitism’ (a sardonic reference to the combination of Conservative Chancellor Rab Butler and Labour leader Hugh Gaitskill widely seen as living embodiments of the post-war consensus). But by 1979 the consensus was in tatters as the 70s had brought about high inflation amidst a stagnant economy (“stagflation”), unions who were regarded as too powerful and out of control with their members demanding excessive wage increases greatly adding to inflationary pressures, a bloated state sector absorbing up to 60% of GDP and punitive rates of taxation deterring enterprise and incentives. The consensus was discredited and widely blamed for the ills that beset the nation.
Margaret Thatcher’s government elected in 1979 ushered in a new set of policies which in tandem with developments on the international stage such as the election of the Reagan administration in the US brought into being a new consensus. This again has had various names given to it, but the one that has had most coinage is economic liberalism. This in a nutshell repudiated the values of corporatism and the social market economy and in their place emphasised the virtues of the free market, the ending of state subsidies to inefficient industries, emasculating the trade unions, reining in public spending, significantly reducing the state sector through de-nationalisation and privatisation and the adoption of new social values of frugality, thrift and morality or what was trumpeted variously as “back to basics” or the resumption of Victorian values.
Economic liberalism triumphed globally in the 1980s, particularly with the sudden collapse of communism and the demise of the Soviet Union. But not everything was what it seemed even in Thatcher’s Britain. Yes, especially after the miner’s strike of 1984-85, the trade unions were effectively routed, state industries were sold off (on the cheap) and most restrictions on the free market lifted. But there were some paradoxes: Despite all of the vociferous anti-state rhetoric, overall public expenditure actually increased throughout the period of Mrs Thatcher and her successor John Major’s premierships (the contrast between popular perceptions of run-down public services in this era and the fact of continuing high public spending is explained by the virtual collapse of spending on public capital expenditure: building and equipment deteriorated, especially in health and education, while revenue spending continued to rise particularly to pay for unemployment benefits and the accompanying social care services such as social workers as well as increased public sector pay levels), wages continued to rise, frugality was firmly supplanted by ostentatious and conspicuous consumption epitomised by the comedian Harry Enfield’s creation bellowing “Loadsmoney” which captured the zeitgeist of the times better than a hundred academic analyses and morality was relegated to the substitute benches as censorship in the media and elsewhere was substantially relaxed. If the permissive society was alleged to have begun in the 1960s, it had its full flowering in the 1980s.
The common denominator buttressing economic liberalism and helping to explain the social liberalism that accompanied it was the focus on individualism. The period since the 1980s has been unprecedented in its emphasis on the individual and individual rights. And this focus has allowed a strange hybrid to develop. While the left conceded great ground on the economy with the wholesale dismantling of the corporatist, mixed economy and the flowering of a free market economy, the concentration on individualism and rights allowed a strong emphasis on human rights, equalities, diversity and anti-discrimination to develop; areas which had hitherto been the preserve of the left. A virtual and unwritten historic compromise emerged wherein the right dominated economic policy and thinking while the left largely got its way in social and political matters.
The new consensus, therefore, had as its bedrock, free market economic liberalism, but it could also accommodate a massive and sustained expansion in state power to allow for the enforcement of equalities and anti-discrimination, a huge enlargement of employment rights and a huge increase in quangocracry and bureaucracy as red tape and regulation spiralled.
New Labour (if that is now not an anachronism) adopted this consensus whole. It seemed to have a magic formula, endorsed by the electorate on no less than three occasions which appeared to please everyone, left, right and centre. Labour endorsed wholeheartedly the free market, continued to oversee the progressive de-industrialisation of Britain while applauding the dominance in the UK economy of the financial sector and the City of London which it gifted with a light-touch, almost non-existent veneer of regulation. It maintained a strong aversion to nationalisation and any semblance of a mixed economy as well as tax rises. At the same time Labour oversaw a huge rise in state expenditure which it financed from a booming economy based largely on debt, particularly in housing, subsidised in no small part by cheap imports. Regulation (of virtually everything but the economy, especially the financial sector) and legislation continued to increase almost exponentially (some 3,000 new laws came into force in Labour’s first ten years in government) in tandem with a reinforced emphasis on equalities and anti-discrimination.
By the middle of the last decade, Britain appeared to be an almost schizophrenic, bi-polar state. An emphasis (some would say almost an obsession) with equalities while real income inequality and the gap between rich and poor grew to levels not seen since Victorian times. A focus on enterprise, initiative and individualism, while every aspect of society was suffused in regulation, risk aversion and strenuous efforts to not cause offence. Much talk of empowerment, consultation and participation when the reality was of a society where power and decision making were concentrated ever more exclusively in the hands of a few.
However, as long as the economy was on a roll these multiple contradictions and attempts to have everything all ways, to placate left and right, could be lived with. The crash of 2007 has seen the unravelling of this consensus, in particular that the economy can be left in the hands of a virtually unregulated free market, but also exposed all the contradictions, of trying to have everything all ways. In the main politicians, political parties and policymakers have yet to wake up the fact that rules of the game which have been in force for the last three decades are over. What the new consensus will be like is still being grasped and probed at. But, against the background of the huge deficit and the looming onset of the age of austerity, a new consensus will arise. The question as to what the outlines of the new consensus might look like will be addressed in Meikle’s Blog throughout the rest of the year.
Welcome to the new decade!