Revolutions in Economic and Political Thinking

Are we in a revolutionary phase, comparable to 1979? Or, to put it another way, does the "surprising" success of Corbyn suggest a turn in the economic and political tides? The assumption that there was a paradigm-shift in the late-70s between Keynesian demand-management and neoliberal (or "market liberal") thinking in economics is dubious. This is not only because there is often more continuity than change in a revolution, but because Keynesianism has been mischaracterised as the quintessence of social democracy rather than just a variety of technocratic liberalism. As Simon Wren-Lewis has noted, the changes in macroeconomic theory were largely methodological, with the policy shift being driven by politics rather than economics, not just in the willingness to allow unemployment to tame inflation but in a conscious revision of the role of the state. Despite its claims to be a theory of society, postwar social democracy was essentially a pragmatic of government, hence it proved intellectually vulnerable to a challenge that questioned the state's role. In the words of Avner Offer, "Social democracy and market liberalism offered different solutions to the same problem: how to provide for life-cycle dependency. Social democracy makes lateral transfers from producers to dependents by means of progressive taxation. Market liberalism uses financial markets to transfer financial entitlement over time".

This suggests that a compositional change occured between public and private sectors starting in the 1980s, but in practice the state has barely shrunk in size, with the notable exception (more striking in the UK than elsewhere) of a retreat from mass housebuilding. The key difference between classical liberalism and neoliberalism is that the latter is constructivist: it believes that markets have to be built and (crucially) actively maintained by an enlightened state. While there are differences between the varieties of market liberalism (the Austrian School, the Chicago School and the Ordoliberals), what they all share is this belief in the necessity of the state. This is not just the resigned acceptance of historical contingency or a compromise with the complex demands of modernity. Though neoliberalism appears to hark back to Locke's Two Treatises of Government, it is equally informed by Hobbes' Leviathan and the ideal of a sovereign. For neoliberals, the sovereign exists to create the market system, which is an admission that, over-and-above petty trading, markets are artificial, not natural and spontaneous. An implication of this is that the justification for any market must be utilitarian - i.e. one of effectiveness and efficiency.

The current "crisis of capitalism" in British political rhetoric has arisen because the neoliberal approach - universal marketisation - has failed to deliver the goods, not because millennials have lost faith in market mechanisms or private ownership tout court. In that light, not much has changed over the years. The public has always been sceptical about the universal applicability of markets, most obviously in areas such as the NHS and railways, even while it paid lip-service to market principles more generally. Consider for example the persistence of the "contributory principle" in the popular conception of the welfare state, leading to the erroneous belief that National Insurance contributions go into a fund for later drawdown, rather than current expenditure being met by current revenue: a lateral transfer treated as if it were an intertemporal market. Or bear in mind that prescription charges were introduced in the NHS as early as 1952. In other words, the clean theoretical distinction outlined by Offer was always muddier in practice, while the serial break between social democracy and neoliberalism masked considerable continuity.

The key change that occurred around 1979 was in the assumption about whom the state should primarily seek to satisfy. Despite right-to-buy and relaxations on household credit, this constituency was not the "aspirational" population at large but business leaders who had been concerned by declining profits from the 1960s onwards (a result of increased global competition and relative under-investment by UK capital in the postwar years). If the Butskellite consensus meant the government trying to balance the competing demands of capital and labour in the 1950s, Macmillan's application to join the EEC and Wilson's commitment to the "white heat of technology" suggested a desire to transcend this binary in the 60s, with an appeal to trade and innovation respectively. The failure to progress either would lead the state to opt decisively for the interests of capital in the 1970s, provisionally under Heath and then irrevocably under Thatcher. However, this commitment was still seen in terms of the efficiency of industrial production, rather than promoting the interests of rentiers, and would continue in that rhetorical vein with Thatcher's "let managers manage" mantra and the cult of the entrepreneur that would be adopted as enthusiastically by New Labour as by the Tories.

It seems obvious now, post-2008, but a significant number of those "business leaders" were bankers and other financial intermediaries, rather than the productive managers and wealth-creators restrained by dinosaur unions that the media portrayed. The loosening of credit and other financial controls that started in 1971, together with the US abandonment of the Bretton Woods exchange system, marked the point at which social democracy started to cede political control to neoliberalism (you could also make a case for the emblematic importance in the UK of the privatisations of Lunn Poly and Thomas Cook). Thatcher's further financial deregulation and the full-on monetarist experiment of the early-80s were the culmination of a process that had started a decade earlier with the Bank of England's first steps away from qualitative control towards quantitative, market-oriented monetary policies. Jim Callaghan's conference speech in 1976 ("We used to think that you could spend your way out of a recession") was an acknowledgment of the strategic implications of this change for fiscal policy, even though it was presented in terms of a tactical response to inflation. His famous words from 1979 - "You know there are times, perhaps once every thirty years, when there is a sea-change in politics" - described an apparently mysterious and sudden process that he had played a major part in preparing over many years.

Far from being a sea-change, the election of the first Thatcher administration marked the culmination of an intellectual struggle that had started in the 1950s following the 1949 devaluation of Sterling. While most histories of neoliberalism now point to 1968 as the year when it gained intellectual momentum, reflecting a growing scepticism about the state and grand political narratives and an appetite for personal liberation, you could argue that the pivotal year in Britain was 1956 when Suez ended any lingering delusions about the UK as a global power and obliged it to turn its attention to Europe (it was also the year of Anthony Crosland's The Future of Socialism, which pointed Labour towards the social market economy and "soft" neoliberalism). There are clear echoes in current politics of those earlier years, not just in the imperial nostalgia of the right and the fetishisation of trade and innovation, but in the Labour Party's oscillation between internationalism and isolationism and the pervading sense of a governmental system that is out of touch and lacking in self-confidence (and no, that isn't just down to the trauma of Brexit). Such antique echoes are not necessarily a bad sign: the original meaning of "revolution" was the revival of an earlier, better state, and the theme of lost liberties restored was central to revolutions from 1642 through 1789 to 1989.

The persistence of neoliberal hegemony after 2008 does not mean that neoliberalism is in rude ideological health. After all, social democracy managed to limp on after 1971 and arguably didn't give up the ghost until the late-80s, but there is less certainty now about what is waiting in the wings. Neoliberalism had the benefit of a well-organised network of policy entrepreneurs (the "thought collective", as Philip Mirowski puts it) operating from the 1940s onwards, which meant it could present a plausible and long-honed argument when social democracy was felt to be inadequate in the face of the stagflation of the 70s. In contrast, the alternative visions emanating from the political left in recent years have tended to be tonal, such as the communitarianism of Blue Labour or the "networked worker" of post-capitalism, with policy substance largely limited to social democracy's greatest hits: socialised assets, market interventions, universal services etc. But the absence of any "neo" element, like neoliberalism's volte-face on the utility of the state, doesn't invalidate the social democratic programme or suggest a refusal to engage with the modern world. "Socialism with an iPad" may be a risible slogan, but it highlights that socialism was always more comfortable with modernity than classical liberalism was.

Both social democracy and neoliberalism were responses to the inherent contradictions of classical liberalism and the failures they gave rise to, notably the need for a protective state to mitigate the socially destructive impact of markets and the demands of total war that required the socialisation of capital. Social democracy was the more organic and pragmatic response, seeking to adopt elements of socialism within a liberal framework that preserved property rights - e.g. the pursuit of "public ownership" through state control served as a prophylactic against workers' control. Neoliberalism was always a more coherent theoretical response, which has paradoxically allowed it to live on in academic and media discourse long after its headline claims - that wealth trickles down, that the private sector is always more efficient, that deregulation spurs beneficial innovation - have lost credibility by their failure in practice. We can therefore expect a revived social democracy to try and salvage certain features of neoliberal theory, and it is in that light that much of the "new thinking" on the left should be seen. For example, Hayek's idea of dispersed and fragmentary knowledge can be spotted in postcapitalist musings on dynamic networks and interstitial emergence, while Gary Becker's ideas on human capital inform contemporary left thinking on autonomy and self-actualisation.

Likewise we can expect conservative interpretations of social democracy to push back beyond the Attlee years to connect with an older liberal tradition. For example, this (from before the Stoke Central by-election in February) is typical: "Labour needs to return to 'its roots in a kind of moral and civic critique of the excesses of capitalism'. This was the core thrust of Merrie England, and the original spirit of a Labour party that had its roots in religion, not Marxism. But during the 20th century, the 'ethical tradition' faded as the parliamentary party became more pragmatic and managerial, while the left pursued the more confrontational Marxist route of class struggle" (Robert Blatchford's Merrie England of 1893 popularised William Morris's romantic criticism of capitalism). Corbynism, insofar as it can be so styled, has exhibited the organic and pragmatic instincts of classic social democracy, but to date it has also carefully avoided both the Scylla of nativist nostalgia and the Charybdis of "market confidence". If it does lead to a significant shift in British politics, this may well centre on its attitude to personal wealth (i.e. inequality), where there is a very obvious contrast with the "relaxed" attitude of New Labour. In other words, a revival of lateral transfers remains more likely than a challenge to the ownership of capital, which is a revolution of sorts.