Inflection Point

It's a regular feature of economic discourse in the UK for senior economists at the Bank of England to deliver lectures that are historically-informed, questioning of orthodoxy and apparently open to new ideas, from UBI to the blockchain. None of which ever seems to inform the Bank's core policies. Andy Haldane is perhaps the most high profile recent example, but you could also see the form in the recent speech of an ex-BoE economist, the Shadow Chancellor of the Exchequer. Rachel Reeve's Mais lecture was trailed negatively in the conservative press - the emphasis on the praise of 1979 as an inflection point reliably winding up lefties - which meant that its reception predictably swung too far in the opposite direction, with delirious praise in the liberal media because she'd decided that Thatcherism was a failure in its own terms and auserity self-defeating, as if these were novel ideas. But she did not reject the Thatcheritie diagnosis: "Once again, we have found ourselves in a moment of political turbulence and recurrent crises with the burden falling on the shoulders of working people – with at its root, a failure to deliver the supply side reform needed to equip Britain to compete in a fast changing world." 

Though she cites many historians and economists as authorities, Reeves isn't always accurate in her thumbnail sketches. For example: "The political economist Karl Polanyi who came to Britain from Austria as fascism rose in the 1930s wrote of the tendency of market economies that become disembedded from their societies to undermine the conditions for growth and provoke powerful political counter-movements of both left and right". In fact, Polanyi's point was that capitalism - a historically contingent form of social relations - deliberately undermines society by creating fictitious commodities in land, labour and money, which produces a counter-movement that seeks to embed the market in society by means of economic regulation and social provision. Far from originating on the left or the right of the political spectrum, this counter-movement is essentially centrist, constructing a broad consensus and operating through established political structures and norms. For example, the 19th century Factory Acts or the early 20th century moves towards a welfare state. 

In citing Polanyi and Joan Robinson, Reeves is insisting that "economics is not just about quantitative models and abstract theory – it is about values, rooted in political, philosophical and moral questions, about human nature and the good society." This all sounds fine and dandy until you soberly consider the track record of the Labour right when it comes to philosophising about the good society (Tony Crosland's The Future of Socialism was a long time ago), or wonder about the morality of people who take sinecures with water companies and employ confected outrage to expel or deselect fellow party members. Of course, what Reeves is really arguing for is not a humane and holistic approach to governance but the restoration of the pre-eminent role of the state. In 2017 William Davies described neoliberalism as the "‘disenchantment of politics by economics". Building on that, in 2021 Grace Blakeley noted that "The last fifty years of neoliberal hegemony has reshaped statecraft away from the governance of the market and towards governance by markets." What Starmer and Reeves intend is not a straightforward reversal of that, i.e. a return to the dirigisme of the 1960s, but a new compact with capital in which the state acts with more visible authority specifically in order to legitimise markets.

To that end it makes sense to claim that we are now in a new economic paradigm and that neoliberalism is history, a claim some on the left have been happy to echo, but is there any evidence for this? Reeves accepts neoliberalism's crude public image: "Governments and policymakers are recognising that it is no longer enough, if it ever was, for the state to simply get out of the way, to leave markets to their own devices and correct the occasional negative externality." But this is a myth: the market has always been a political construct. The idea of state and markets in opposition, or even persistent tension, is ahistorical. Starting with Adam Smith's "propensity to truck, barter, and exchange", capitalism has been presented as innate to human nature. But Polanyi's point is that it wasn't, and that this was what caused the trouble. Reeves's claim that the market "became disembedded" is a simple misrepresentation of his position, suggesting a failure of regulation as markets became more sophisticated rather than the interposing of a hitherto unknown form of social relation that dramatically disrupted society ("All that is solid melts into air"). 

According to Reeves, the new paradigm means "embracing the insights of an emergent economic consensus. The Harvard political economist Dani Rodrik speaks of a new ‘productivist paradigm’. The US Treasury Secretary Janet Yellen has branded the Biden administration’s agenda ‘modern supply side economics’. Across the world, related ideas appear under different banners. I use the term ‘securonomics’." The idea that these developments represent a new economic consensus is dubious. The very fact that we have many labels for the same idea should be enough of a clue. This is not simultaneous emergence but a coordinated ideological campaign. It also ignores history. Governments have always had a productivist bent, notably in strategic areas such as defence, energy and agriculture (Biden has explicitly tied his industrial strategy to national security), just as they have always concerned themselves with social reproduction. The chief policy question has typically revolved around the state's role in the discretionary economy, with a subsidiary question being where the boundary exists between that and the strategic core (i.e. mandatory) economy that the state will never cede control of. 

In the UK context, this debate centres on the foundational economy, which encompasses retail (i.e. of food and the other necessities of social reproduction), care, transport and utilities (Reeves refers to it as the "everyday economy"). The topical question is which  parts should be nationalised. That Labour isn't currently demanding the renationalistion of power or water tells you that they do not intend to significantly shift the boundary between the discretionary economy of rigged markets and the mandatory economy of strategic industries. Instead, we can expect the state to take on a more robust regulatory role (Ofwat is clearly trying to work towards this new regime). We might even see investors expected to take the odd haircut. But what we won't see is any challenge to property rights. Starmer and Reeves have made it clear that social investment depends on economic growth, and that that in turn will only be delivered through private sector investment so the government must guarantee fiscal stability and protect the rights of investors.

Citing Karl Polanyi and Joan Robinson doesn't completely distract from the obvious absence in the speech, namely any reference to John Maynard Keynes, and the reason for that is that his work, despite its impeccable liberal credentials as an attempt to save capitalism from itself, obviously doesn't sit well with the fiscal straightjacket that Labour has decided to wear. Interestingly, Keynes' famous antagonist, Friedrich Hayek, doesn't get a namecheck either, but he is very much there in Reeves's comments on the ability of the state to plan the economy: "It is not the crude model of the state directing industrial development and correcting externalities as seen from the centre, but instead an approach that recognises the informational and capacity constraints of government, working in genuine partnership with business to identify the barriers and opportunities they face." This is the influence of Hayek on information theory, but it is also pretty clearly a justification for allowing the private sector greater access to the NHS.

Beyond the partnership bromide, Reeves's prescription for growth is a combination of political and economic stability, increased business investment, and a somewhat nebulous unlocking of "the untapped potential throughout our economy". This includes "Acknowledging those sectors in which we enjoy – or have the potential to enjoy – comparative advantage and can compete in a global marketplace". But where do we genuinely enjoy comparative advantage? For the first two decades of this century it was in the unique combination of being inside the EU but outside the eurozone. When Peter Mandelson says rejoining the EU is not on the agenda, it's because he knows that we could not recreate that advantage through accession negotiation. The EU would demand that we give up sterling or at least level the playing field for financial services between the City of London and Frankfurt, Paris and Amsterdam. Unless the UK discovers another comparative advantage of a similar scale ("floating offshore wind and carbon capture and storage", which Reeves references, are unlikely to fit the bill), a return to the EU isn't going to happen except under conditions of desperation.

When she gets down to specifics, Reeves can only offer tired old forumulas. Reasserting Bank of England independence is to subscribe to the mythology of money as a commodity that Polanyi criticised. Planning (i.e. building, not directing industry) is presented as something that the UK is uniquely bad at, which offers hope of a quick fix, but planning reform is offered as a panacea in most developed economies these days, with similarly negligible results, which suggests it's anything but a quick fix. The more obvious issue is the concentration of capital in property, which leads to perverse incentives, and that won't be solved by another generation of new towns. Similarly, the suggestion that we need more labour market reform, even if under the cover of enhanced workers' rights, needs to be seen in the context of decades of labour market liberalisation, punitive benefits regimes geared to maximising employment, and an emphasis on skills training. The end result is a low-wage, low-skills economy with growing levels of inactivity and under-employment. Is more tinkering going to change that?

This week James Meadway made the point that if Reeves's lecture marks a break with neoliberalism it also marks a break with social democracy in its shift away from social reproduction (health, education etc) towards industrial productivism, but that this was happening at a time of a growing crisis in social reproduction (e.g. falling birth rates because family formation is too costly). So what fills the vacuum? The answer appears to be the transfer of the authoritarian practices exhibited under New Labour in the field of biopolitics towards the domestic economy. Less an inflection point than a swivel to a new target. The problem is that the Labour right's ideological bent, combined with the structural and cultural constraints this shift will face (it's far easier to beast the poor than SME owners), will likely see it run into the sand. Indeed, before Starmer has even entered Number 10, we are seeing shadow cabinet members eagerly returning to their favourite Aunt Sally of people on benefits who should be working. The suspicion is that the display of authority intended to restore the credibility of the state after the twin insults of Brexit and Corbyn will quickly devolve into mere authoritarianism.