Labour and Ordoliberalism

The Labour Party under Keir Starmer has been characterised by a tendency to prime the press that he or another senior member of the shadow cabinet is about to make an era-defining speech that will simultaneously tell us what the party now stands for and set the agenda for the coming general election. They invariably disappoint, which makes you wonder why they keep doing it. In part it's simply because this is the way centrist politics is done: substance subsumed to media management and set-piece speeches reduced to the hunt for a TV-friendly soundbite. The problem is that none of Labour's front bench are skilled rhetoricians who can riff on the bland material, while the failure to define the era through a telling phrase or slogan ("For the many, not the few", "Get Brexit done") clearly isn't because they're keeping the good stuff back for the election campaign. Insofar as a speech these days tells us anything, it is more likely to be which promises the leadership have now decided to row back on. It's hardly inspiring stuff.

The belief that this pattern would be broken by Rachel Reeves in her speech in Washington DC earlier this month was strong, despite her robotic style and penchant for cringe-inducing neologisms such as "securonomics". Together with the paper that fleshes out the ideas, A New Business Model for Britain, the speech was clearly intended to define the lineaments of Labour's economic strategy. Given the performative echo of Treasury practice seen since then, whereby Reeves and Pat McFadden have slapped down expenditure promises across other areas, it is clear that whatever can be gleaned from the Shadow Chancellor's statements probably marks the limit of the party's ambition. But while the recent focus has been on how Labour's "fiscal rules" will always trump investment (the Green New Deal is now intended to reach the target of £28 billion of annual investment at some vague mid-point in the next parliament), less attention has been given to understanding the ideological shifts underway.

The wider context here is the retreat from "high globalisation" and the turn towards national economic planning, most obviously evidenced in Joe Biden's "Build Back Better Plan" for the USA. The political consequence is a stronger role for the state, ensuring strategic investment for future key technologies and incentivising business to reshore production and encourage well-paying union jobs. This has been presented as both continuity and reform, which is captured in Janet Yellen's description of the productivist turn as "modern supply side economics", a phrase Reeves approvingly quotes. However, perhaps the biggest continuity is the recognition that the US state has always taken a strategic approach, from Alexander Hamilton and the protection of fledgling industry in the nineteenth century through the institution building of the Progressive era and FDR's New Deal to the central role in industrial and technological planning played by the Department of Defense since 1945. Outside the 1940-80 period, the UK has not been as strategically committed to planning or direct industrial intervention.

One interpretation is that Reeves' speech marks Labour's move away from neoliberalism. As Simon Wren-Lewis put it: "The stress of higher public investment, an active industrial policy and much else shows that we are not seeing a repeat of the Blair/Brown programme. To New Labour neoliberalism looked like a success story in boosting the UK’s relative economic performance, so much of what Thatcher did was preserved. Today the opposite appears true." But if Labour is moving away from 90s-style neoliberalism, what is it moving towards? Almost ten years ago, Wren-Lewis sought to explain his own understanding of the differences between neoliberalism and ordoliberalism. While this was clearly part of his longstanding campaign to rescue mainstream economics from its association with neoliberal ideology, he did usefully distinguish ordoliberalism in two respects. First, "Ordoliberalism sees a vital role for the state, in ensuring that markets stay close to some notion of an ideal market". And second, it's practical application is through a "focus on rules and independent institutions". Both of these dimensions are clear in the Shadow Chancellor's words.

If we view Joe Biden's strategy in the long context of a highly-interventionist American state, what is the credible historical context of the UK state? The ordoliberal patina of Reeves words shouldn't lead us to imagine that the next Labour government will take Germany as its model, citing Ludwig Erhard as an inspiration and promising a British Wirtschaftswunder. Even if rejoining the EU were back on the agenda, national pride would make such a deliberate comparison politically unpalatable. While the Tories are never shy of promoting international models, from Silicon Valley to Singapore, the Labour Party has always been rigidly nativist and backward-looking in seeking inspiration. The underlying assumption is closer to the postwar era's mix of national capitalism, founded on a strong manufacturing base, and the warfare state of high defence spending and technological research, as outlined by David Edgerton. But this is clearly just nostalgia. The manufacturing base of the 1950s and 60s isn't coming back and defence spending isn't going to increase enough to stimulate the wider economy. It's also clear that reviving the Industrial Strategy Council and other institutional gestures will mean little while Labour remains reluctant to pursue nationalisation.

If you rule out both the neoliberalism of the 1979-2008 period, and the type of economic planning and government intervention in markets seen in the postwar years, then pretty much all you have left as a guide to government is the 1920s and 30s, which isn't going to win hearts and minds. Labour's problem is that there is a gulf between its modest proposals and the heroic visions of the past, such as the 1940s and 1960s, from which it can legitimately take inspiration. We return then to the perennial problem of the Labour Party: if it isn't for socialism, then what is it for? The simplest answer is that it is for the state. This means both that it seeks to advance the apparatus - that is the institutionalised political class and its auxiliaries in the media, public administration and think-tanks - and that it contingently seeks to restore the dignity and gravitas of the state after its recent embarrassments, something that clearly motivates Sir Keir Starmer KC. In this context, ordoliberalism has the attraction that it retains the basic neoliberalism, notably in the aversion to public ownership, while elevating the importance of the state.

But perhaps Labour isn't moving as far from neoliberalism as left-of-centre observers like Wren-Lewis imagine. As Will Davies put it recently, "When politicians argue that we onshore supply chains, they contradict the key tenets of globalization, so it strikes observers as post-neoliberal. That’s how it appears from the perspective of the liberal center." This highlights the way that centrists have tended to associate neoliberalism, if they accept the term at all, with globalisation and the removal of trade barriers: essentially the economic dimension of liberal internationalism. They have been far less willing to identify domestic policy as neoliberal, particularly in its promotion of market mechanisms and the cultivation of assets, often seeing these, along with anti-labour laws, simply as common sense. But if you recognise that the disciplinary, biopolitical state is at the heart of neoliberalism, then the current incarnation of the Labour Party, with its obsessive internal purging and promises of crackdowns on antisocial behavour, is most definitely neoliberal.

If Labour is really an unreformed neoliberal party adopting the convenient rhetoric of the ordoliberal state it remains unclear which vintage of neoliberalism we're looking at. The "global race" rhetoric of the 1990s is still to the fore, but so too is the "fiscal responsibility" of the 2010s. There is plenty of talk about Tory failure over the last 13 years, but less clarity on what Labour would have done differently in power. Insofar as Reeves ventures a critique of the New Labour years it is to dismiss the belief "that a nation can rely on growth in just one corner of the country or a handful of industries". There is also an implicit recognition that Blair and Brown never turned around the UK's history of underinvestment. But for all the incidental references to her Leeds West constituency, her prescriptions are vague on how areas like Yorkshire could be expected to post GDP growth ahead of North Rhine Westphalia or Lombardy. Those advocating a swift return to the EU Single Market are equally vague on how this one neat trick will reverse the decades of relative underperformance experienced after the establishment of that market.

Consider this thumbnail sketch from the Reeves paper: "It is not all that long ago that South Korea’s comparative advantage was in agriculture. Today, with far-sighted government action in partnership with a vibrant market, it is an advanced economy with cutting edge industries". This obviously occludes the military dictatorship of Park Chung Hee that oversaw the transformation from the shattered, low-output economy of 1953 to the hallyu of the millennium, not to mention the financial privations experienced by South Koreans during the years when they were out-competing shipyards, car plants and factories in the UK. That combination of repression and sacrifice is simply inconceivable here. The truth is that the British state has never been very good at strategic planning and the limited exceptions in the period between the mid-30s and mid-70s were either associated with the warfare state or nationalisation, that peculiarly British form of socialism. With the S-word effectively banned and our military illusions surely punctured for good after Iraq and Afghanistan, there is an appetite for planning but no sight of an actual plan. The ordoliberal gloss reflects this.