potlatch

calm between the storms

I heartily recommend this piece in today's FT, though not on this occasion because it involves a sociologist putting the boot into neo-classical economics. Strangely, I was having a very similar thought only yesterday: whatever happened to the imminent collapse of the Euro, the inevitable Greek default and the doomed obstinacy of the European political classes? Has history been put on hold? Or have Newsnight researchers simply stopped paying attention? The talking heads from the financial world who explained where everything was inevitably heading - betraying a strange, crypto-Marxian historical materialism - have suddenly disappeared from our screens. At least for the time being. No doubt they'll be back.

And this is the strange condition of the present. There is an ongoing Marxist debate regarding neoliberalism's state of existential health, to which David Harvey replies "it depends what you mean by neoliberalism" and Neil Smith that "neoliberalism is dead but dominant". I have posted here previously to the effect that, judged according to its precise political ambitions, neoliberalism is already dead. But this is too simplistic.

The condition of the present, which could last for many years to come, is one of normality interspersed by emergency. The normality persists inspite of the emergency, a sort of pig-headed determination not to be de-railed by events. Under these circumstances, neoliberalism becomes a beligerent form of denial, a pretence that the same policies, regulators and ideas can continue as if everything were OK. An emergency briefly interrupts the calm, before passing once more.

At the same time, one can only be impressed by the emergency-management skills of European politicians, who seem to have put disaster on hold once more. Perhaps so much apocalyptic rhetoric regarding the Euro played into their hands, by increasing their room for political manoeuvre and raising the stakes. With Merkel's task represented as virtually impossible, the political capital at her disposal grew rapidly on the basis that it simply had to.

One way of interpreting this condition is melancholia, in the Freudian sense. The melancholic individual, for Freud, suffers from "constitutional ambivalence" regarding the past, enraged that it has gone, and so clinging on to the memory obstinately so as to avoid confronting the loss. It becomes a form of destructive narcissism, that ties the individual to the past, as an alternative to mourning. Paul Gilroy has applied this theory to Britain's relationship to empire. I wondered if you could adapt it to financial speculation and its aftermath.

Or there is the theory of exception, in the sense meant by Carl Schmitt and Giorgio Agamben, whereby the dependence of rules upon executive decision becomes plain, and the legal constitution or republic becomes subject to emergency political measures for its own benefit. Exception is also a form of ambivalence, in the sense that preservation of the status quo becomes so critical as to demand extraordinary and unprecedented measures.

I have a paper, that I'll hopefully be able to post in the coming weeks, analysing Europe's present economic situation as a state of neoliberal exception. Under such circumstances, political actors are neither inside nor outside the standard economic rules of government, but rescuing them by whatever means necessary. Persisting with 'business as usual' is feasible but only on the condition that entirely unusual measures can periodically be introduced. Hence, neoliberalism is 'alive' to the extent that various elites are still willing to vivify it, but 'dead' to the extent that they remain constantly on guard in order to take action to save it.

Five years after the dawning of the financial crisis, our situation is both critical and stable at the same time. It is stable, but only to the extent that various elites are occasionally willing to take critical action. Once actions are taken, then we return to a form of melancholic attachment to a world that, at some point or other, we will have to agree has disappeared. But in the meantime, I find myself marvelling at the capacity for things to calm down and return to normality, just as much as their capacity to heat up and create emergency.

For and against uncertainty

I listened to an excellent paper from Amos Witztum as part of this conference at Copenhagen Business School in January (where I also gave a paper), in which he described modern liberalism as a form of anti-tragedy. Greek tragedy, as any fan of The Wire also knows, involves characters straining in vain to resist their fate. They face dilemmas and choices, but ultimately these all result in the same outcome. Modern liberalism, especially in the form of Enlightenment, abandons this fatalism. But I think the point Witztum was making was that liberalism doesn't replace tragic fatalism with some form of heroic rationalism, as if we become masters of our own destiny. It replaces fatalism with uncertainty.

This interpretation of liberalism-as-uncertainty is shared by Friedrich Hayek, for whom freedom was found in ignorance regarding the future. Hayek's ambition for neoliberalism was to restore a form of government that made no predictions or guarantees regarding future economic outcomes. His opponent, of course, was not the Greek God but the socialist planner, who insisted that things turn out according to his bureaucratic dictat. Though as countless anecdotes about Soviet productivity rising by "20%" in a year or crops being planted only alongside the railway lines which Mao was due to travel down, socialism was less beset by the fatalism of tragedy, and more by the raised eyebrow of comedy. The person who is certain what's going to happen, and is almost certainly wrong, is another important figure when considering the politics of uncertainty.

There's a bastardised (aka Policy Exchange) version of Austrian economics, which says that the UK government can restore growth by getting out of the way. But Hayek's lesson is not that small government will 'deliver' better outcomes; it's that government should abandon any scientific concern with outcomes altogether. That is scarcely an option available to a modern politician. As I argued here, George Osborne's policies have a comedic air about them, resting on bold claims about the future that nobody seriously believes, possibly not even him. The Office for Budgetary Responsibility is being dragged into this comedy, performing its 'independent objectivity' with a smirk forming around its lips. Martin Amis could write a sequel to his critique of socialist irony, subtitled Laughter and the 2011 Growth Forecast.

Whether or not anybody today is really a whole-hearted Hayekian, this nevertheless poses an interesting question: how much uncertainty do we want in our economy and society? The term 'uncertainty' is sometimes misunderstood, thanks to mis-readings of Frank Knight. Many people, including economists, are prone to say that there are two types of situation, those which involve risk (and can be subject to probabilistic calculation) and those which involve uncertainty (and can not be subject to such calculation). This is entirely wrong. Knight's argument was that all situations involve uncertainty, as an existential fact of human life. But we have various pragmatic responses to it, including the construction of risk models, which succeed to varying degrees. Other pragmatic responses to uncertainty involve seeking to actively reduce it, through forms of concerted action and co-operation. For instance, the nudgers have discovered that if you get an offender or truant to sign a piece of paper promising to improve their behaviour, they are more likely to do so; uncertainty has been reduced.

'Actually existing' neoliberalism of 1979-2008 was organised around two contradictory positions on uncertainty. On the one hand, competition was to be unleashed and manufactured, for the sound Hayekian reason that this would produce uncertain outcomes. This treated uncertainty as something that was valuable in and of itself. On the other hand, risk modelling, audit and managerial expertise was honed in order to reduce uncertainty, in the interests of corporations, finance and other elites. In between these two, at the conflicted heart of the neoliberal project, lay the problem of corporate governance elicited by the separation of ownership and control of firms. It is no surprise that the project eventually combusted thanks to 'agency' problems.

Social democrats, communitarians and Keynesians have often criticised neoliberalism for valorising uncertainty, making stable families and communities harder to sustain. The privatisation of pensions, for example, means that we have no confident knowledge of our retirement income. But it is surely wrong to argue that ordinary people necessarily want uncertainty to be reduced. Our obsession with sport, gambling, talent shows - admittedly all riffs on a Hayekian vision of competition - demonstrate how much we thirst for the unknown outcome. This is despite the fact that rapid and unexpected changes of income/status can be as disruptive on the way up as on the way down. I, for one, refuse to accept that we automatically want a society in which uncertainty is kept to a minimum. It seems sociologically and politically naive. It misses the significance of 1968. Worst of all, it shows scant understanding of cricket as a source of romanticism and politics.

What is far more significant to the current moral crisis of neoliberalism is not that ordinary lives are mired in uncertainty, but that elite lives and institutions are not. While elites and managers spoke of innovation, competitiveness and constant 'ever-faster change', it seems that they were partly doing so in order to exempt themselves from so much uncertainty. The rhetoric was Austrian and liberal, but the behaviour was quasi-socialist in its extreme effort to dictate outcomes. The significance of so many recent books about inequality in the West is not simply in the levels of inequality that they identify (though that clearly matters) but in the patterns, repetitions and rationales that they identify in how inequality comes about. The dice are loaded. It's not that life is unfair, which is something that most adults should be able to handle; it's that it's unfair in unfair ways. Liberalism, whether of a Rawlsian or a Hayekian variety, is something we might be able to stomach, if things really were left to chance (be it via the veil of ignorance or market spontaneity) but the dominant view, post-2008, is that they're not.

In considering a future and better economic policy paradigm, we need to consider the political status of uncertainty. Possibly we need to find appropriate spheres for liberal, tragic and comic perspectives on the future, and not confuse the three. Uncertainty won't disappear, but it will be distributed in certain ways. The ability to calculate the future is unevenly distributed, as Koray Caliskan's Market Threads illuminates. And the ability to control the future is also unevenly distributed. Some people would dearly love more uncertainty in their lives; others would dearly love less. Maybe a good life is one in which the individual takes some responsibility for the outcome, but not complete responsibility. Equally, an honest politician is one who claims some responsibility for policy successes and failures, but not all.

capitalism as a policy problem

The current British policy and media vogue for debating 'capitalism' may well be unprecedented. There have long been rolling public debates about specific institutions and practices, such as banks, markets, debt, financial markets and trade. But to focus on capitalism implies a more political-economic perspective, which is alert to questions of hierachy, ownership, power and institutional evolution. At least it should do. Historically, the question of 'capitalism' has been more often debated by its critics (from Marx onwards), or else by those such as Milton Friedman who have used it to attack socialism. Even then, neoliberals have preferred to refer to 'markets', 'enterprise' and 'entrepreneurship' when providing the gloss to their economic argument.

The new debate is to be welcomed, but it is inevitably throwing up misunderstandings and strange representations. The Financial Times has been running a sophisticated series of op-eds on the crisis of capitalism, which only really hit the intellectual rocks with a piece published yesterday, entitled 'It's a crisis of confidence, not of capitalism' (the stupidity of the article's headline turned out to be well-matched to the identity of its author, the Chancellor of the Exchequer).

The first thing to note, as if it needed saying, is that of course capitalism is in crisis. The denial of this fact seems to go hand in hand with two intellectual errors. Firstly, it misunderstands the meaning of the word 'crisis', which it hears as equivalent to 'end' or 'death'. Nobody has yet plausibly suggested that capitalism is coming to an end. But quite clearly there is a crisis, in the literal sense of a judgement, turning point or critique. Capitalism is in a critical condition, which will determine what sort of future it has. This is what 'crisis' refers to. For evidence that it is in crisis, one need only point to the fact that policies which once alleviated its shortcomings, now appear only to exacerbate them. To his credit, Gordon Brown appears in this piece to grasp the historic importance of the current period that we're living through, and the vast scale of any potentially adequate political response.

Second, the crisis deniers get lost in is/ought distinctions. They seem to believe that announcing a 'crisis of capitalism' means advocating socialism. They then very swiftly fall into making abstract and irrelevant moral-psychological claims about how competition and self-interest are 'still' the only plausible bases for organising the economy. Take this Newsnight debate from last week for example. The inevitability of capitalism, in roughly its current form, is asserted on the back of a philosophical anthropology, which is derived from... well, the think tanks and ideologues whose job it is to defend the freedom of capital. Typically this freedom is also erroneously dressed up as the freedom of markets, with endless mis-readings (and more likely, non-readings) of Adam Smith to buttress it.

Yet the ideologues are partly responding to the way in which the question of 'capitalism' has been posed by politicians and pundits alike, which is in heavily moralistic terms. Nick Clegg, David Cameron and Ed Miliband are competing to find ways to attack the morally noxious bits of capitalism, and not merely the useless bits, though Miliband's notion of 'predatory capitalism' suggested that the two go hand in hand. I've heard it suggested that politicians' sudden obsession with the 'c' word may be a strategy to avoid talking about immoral 'business', which swiftly invites questions of which businesses in particular, the same questions which floored the entire shadow cabinet after Miliband's conference speech.

It seems that the main reason 'capitalism' has been put on the table as a policy problem is that this distinguishes the problem as a moral one of principles, not a utilitarian one of economics. British politics is suddenly experiencing a classically ordo-liberal moment, in the sense that economic 'right' and 'wrong' no longer map cleanly on to 'efficient' and 'inefficient'. This partly explains why the collapse of economic growth is having so little impact on the Conservative Party's poll-ratings: for the time being, debates have shifted on to liberal questions of form and structure, away from utilitarian questions of output. Other bizarrely non-utilitarian behaviours abound, such as governments and firms seeking to pay off debt at a time of negative real interest rates, producing a 'balance sheet recession'.

To this, some nuance could be added, by recognising that all capitalist crises are also moral crises, but in a very particular sense. From the 18th century onwards, liberalism has functioned on the basis of an illusory split (famously criticised by in Polanyi's Great Transformation) between the amoral realm of the 'economic' and the moral realm of the 'social', also represented as a dichotomy between the sphere of value and the sphere of values. This illusion is propped up by an associated split between economics (the study of rational choice) and sociology (the study of association and rules).

Ultimately this split is a useful fabrication or fantasy that serves policy-making, rather than one emanating from institutions or agents themselves. 'Economic' institutions (such as banks) are awash with moral judgements, rituals and norms; 'social' institutions (such as families) are equally awash with rational and monetary calculation. But the split does some work, in preventing us from subjecting everything to constant moral judgement, which would be hugely time-consuming and inefficient. Neoliberalism has frequently committed the opposite error of seeking to subject everything to rationalist audit, which turns out to be equally time-consuming and inefficient, though when the target is lefty professions and academics, that may be its underlying purpose.

Every stable era of capitalist development rests on its own distinctive way of separating economics from moral judgement (or 'efficiency' from 'equity', as welfare economists like to put it). The critique of capitalism involves challenging this split (for example, through arguing that labour markets are unjust regardless of their efficiency, or that GDP measures bad things) but these critics can typically be rebuffed for decades at a time. However, a crisis of capitalism, like the one we're living through, brings about a collapse in the liberal divide, from both sides at once, as it becomes unclear what is worth measuring and valuing in the first place. Once economics and economic institutions cease to work in a utilitarian sense, their supposed insulation from sociology, moral judgement and political economy fails too.

This is why crises are so exciting and frightening at the same time. They involve a fundamental uncertainty as to what is going on, how long it will take and what types of technologies, institutions and policies will bring it to an end. As I argued in this New Statesman piece, one feature of our current predicament is that we don't yet know what we've come to the end of precisely. A new fluidity opens up, between moral problems of values and economic ones of value, and we confront the strange truth that the entire realm of 'the economy' as a separate thing is really a fiction. This uncomfortable realism only be suppressed again once a new settlement is established, in which a new form of socio-economic division is established, which is both economically effective and morally acceptable.

If current questions of 'responsible' and 'popular' capitalism are to be posed seriously, then we need to be clear about how far moral critique can (and must) currently penetrate. During times of stability, businesses and politicians raise moral questions of values, almost as matters of consumer preference.* This is the function of corporate social responsibility, which is a form of self-regulation at best, and green-washing at worst. During times of crisis, things are far more profound. It is no long a question of what moral values are to be added to utilitarian economic structures, but what moral values are to constitute a future definition of economic value.

This is what I was trying to communicate in my recent paper on employee ownership. In arguing that 'wellbeing' and 'patience' must be central business 'values' of any post-crisis capitalism, I was not intending that these are somehow nice things, which we really ought to think about a bit more. More fundamentally, the fact that the previous model had failed to account adequately for human psychology on the one hand, and for long-term outcomes on the other, was actually at the heart of how and why the crisis occurred. It follows that any resolution of the crisis will necessarily rest on a new notion of economic value, which somehow factors in these moral values.

If the new public debates about capitalism are to be more than rhetorical, they will need to move beyond obviously moral issues, such as inequality and who 'deserves' what. The term 'fairness', like 'equity', keeps morality safely confined to certain classically moral issues, from where it is unlikely to interfere in the distribution of political power (as I argued in this openDemocracy piece. I was delighted to discover amongst The Browser's quotations yesterday Scott Adams' "fairness is a concept so dumb people could participate in arguments"). Instead, it needs to take on economic institutions of ownership, governance, democracy, valuation, audit and performance measurement. There are some encouraging signs that this might be beginning to happen.

 

* I once worked at a research consultancy which was in the process of re-branding itself, and wanted to engage its staff in identifying its core 'values'. This resulted in a hilarious, Python-esque all-staff meeting in which one individual would opine "I think 'trust' should be one of them", which would then be met with a response from elsewhere "'trust' is rubbish! 'Integrity' is far better!", which in turn would be shot down by "nonsense! 'Leadership' is clearly the best". And so on, depressingly confirming Milton Friedman's famous dictum that "over values, men can only fight".

the demise of football

Thomas Friedman famously offered the 'Golden Arches Theory of Conflict Prevention', on the basis that no two nations with a McDonalds within their borders had ever gone to war. Allow me to offer its successor: the 'White Goalposts Theory of Crisis Resolution'. This theory states that we will know that our present economic crisis is being resolved (rather than deepened), once a front-bench politician comes out and publicly attacks football, in terms of its business models, culture and economic norms, and not only for its sporadic eruptions of racism or corruption. My prediction, for what it's worth, is that this event will occur in October 2013, and that the politician in question will be Yvette Cooper, Leader of the Labour Party.

Football was once such worthless political currency that Margaret Thatcher publicly questioned whether England should be allowed to compete in the 1990 world cup, due to the threat of hooliganism. Euro96 was the turning point, although English hooliganism was still rife at the Euro 2000 championships. Since Euro96, no politician has had the guts to question any aspect of the game or its status within our media, public sphere or national self-image. The 'old' aspects of the game - racism and FIFA corruption - are routinely attacked, but the 'modern' game cannot be questioned.

But look how grizzly things are getting. I read last week that Carlos Tevez may be prepared to take a pay cut from his £250,000 a week job at Manchester City, on the one condition that his new club has it written into his contract that he remain the highest paid player in the squad. Wayne Rooney's behaviour regarding his Manchester Utd contract was criticised by many, but politicians repeatedly duck these issues, despite viewing consumerism, (some) advertising and (recently) X Factor as fair game. Energy oligarchs have removed whatever sense of 'level playing field' may have remained in the English Premier League, turning the top of the football labour market into a far less dignified version of what goes on in boardrooms, as players shamelessly strategise towards remuneration increases (hilariously still termed 'wages') through any means possible.

What precisely are we celebrating when we enthuse about football? Increasingly it is referred to as 'athleticism', in which case lets all start following Usain Bolt. If we have to turn our backs on the tediously-adored Barcelona at the same time, then so be it. It's a price worth paying. The football-obsessed sports shops in British high streets have nothing to do with athleticism or even physical exercise any longer. Just try buying some new laces, socks or functional trainers in JD Sports. You could come out dressed from head to toe as Michael Jordan, but there are much cheaper ways to get a fancy dress outfit.

Football is more interesting as a bellwether of contemporary capitalism, and should be criticised accordingly. Not long ago it was PLC ownership structures that looked like they were stripping the heart out of clubs, seeing them run 'for profit'. Now the problem is the opposite: they are owned by private billionaires, run 'for power', but at a vast loss. Roman Abramovich's takeover at Chelsea in 2003 thefore anticipated the broader trends that I've argued the present crisis will unleash.

Regulation School Marxists define a capitalist crisis as a situation where neither 'more of the same' nor 'less of the same' will resolve the situation. Our present debt crisis is a case in point. More debt makes it worse; paying off debt also makes it worse. Resolving such situations requires a fundamental revaluation - innovation not only in policy measures and mechanisms, but in the culture and values that underpin how government and business institutions operate.

The challenge of resolving a serious crisis is that it involves a degree of truth and reconciliation regarding the past. One often has to accept that critics (sometimes quite eccentric ones) are right, and even that they have been right for a long time. The demise of Keynesianism was as slow as it was because it involved coming to terms with the fact that full employment was no longer a useful goal of policy. This was a severe moral revaluation, not simply a technical paradigm shift. The enemies of Keynesianism (the monetarists) had to be welcomed in to the fold. This takes time and much pride swallowing. There is also some first mover advantage on these occasions, just as Britain seemed to benefit from giving up on the ERM, before its terms were loosened anyway.

To accept that football - or should we say 'Football' as an idea - may actually be part of the disease, and not a harmless supplement to our economy would take some pride-swallowing. The idea that 'talent' has its 'desert' in very large amounts of money is so ingrained, we so want it to be true, that we carry on adhering to it no matter how grotesque the spectacle it generates. The media maintains the pretence of separating Ashley Cole the 'talented' footballer from Ashley Cole the unruly working class 'yob' (as if the latter is just his unfortunate inheritance), ignoring the obvious liklihood that football is far more responsible for his noxious personality than his upbringing.

Those on the liberal-left are able to see through the rhetoric of bankers, when they demand that London remain a 'level playing field' so as to ensure that their industry's 'David Beckhams' are still attracted to work here. The liberal-left is able to debunk football as a metaphor. But why not go a stage further, and attack the whole sorry charade that's been making fools of so many people (me included) for the past 15 years?

Why must Jonathan Freedland write a sensible argument about extreme inequality in pay, but in the same article offer a justification for Wayne Rooney's £250k a week? Once you give in to the neo-classical vision of a labour market, that wages are simply a reflection of 'demand', then the door has been left ajar for the likes of Fred Goodwin. Why not just take the bull by the horns, and accept that the whole thing should just be shipped off to a vast in-door Nike sports complex in Dubai where it belongs? Is it not possible that the constant news reports of footballers attacking women, of fans being charged £50 a ticket and replica shirts being 'outdated' every 9 months, of Manchester Utd's Nani having a life-size marble sculpture of himself in his house do not happen inspite of the vast sums of money that are now at stake in this game, but because of it?

At some point in the future this will appear obvious. Soon after that, we will find it difficult to ever believe we tolerated, even celebrated, this circus in the first place - just as, by the 1990s, it seemed extraordinary to think that governments once targeted full employment. For the time being, any politician would shudder at the thought of criticising the game, as opposed to its undesirable 'externalities' or its metaphorical distortions. Which, according to the White Goal Posts Theory of Crisis Resolution, only goes to show how far into our current crisis we are: not even half way.

1991 revisited

The post-socialist moment of the early 1990s throws some interesting light on our current predicament. Was there anything that could be recovered from the socialist scrapheap? I recently discovered Robin Blackburn's long 1991 essay in the New Left Review, Fin de Siecle: Socialism After the Crash. It's a fascinating read, not only for how it picks apart the successes and failures of 20th century socialism, but also for how he envisages a future for socialism, that learns from its 1989 demise. Many of his proposals and ideas for a liberal, 'market socialism' seem eerily relevant to our current predicament, twenty years later. This sounds like a sound recipe for a post-Fred Goodwin age:

Why could not publicly owned banks hire investment specialists or managers, just as banks or pension funds do in today’s capitalism? The successful socialist entrepreneur, whether investment banker or manager, would not, of course, be able to claim the hypothetical ‘full fruit’ of the results of his or her expertise, but neither does the professional today. They would be able to derive intrinsic satisfactions from their job, and they could easily be offered well above the average rate of pay if this was found necessary to their motivation. In a generally egalitarian socialist society quite small differences of pay could be quite highly valued by certain individuals. And it might even be discovered that there were potential entrepreneurs who had been deterred by the morally obnoxious consequences of successful management under capitalism, such as depriving others of a livelihood by closing down a plant. And even in a pattern of socialist economy that encouraged worker-participation and enterprise democracy there would still be ‘positional goods’; the elected manager, indeed, might obtain satisfaction from the discharge of his or her responsibilities rather more legitimately than the owner-appointed manager. If the more acceptable motives failed to work, would not the recourse to differential economic rewards re-create class division? A principled realism might allow that if incomes vary only modestly, and are prevented from being invested in ownership of productive property, then this could permit some incentive element without allowing social differentiation to acquire class-like self-reproducing dimensions and forms.

The banks or holding companies could be encouraged to make a proportion of their funds available for more risky investments or for socially desirable investments, by tax breaks. They could be encouraged to display responsibility as well as initiative by linking them to corporate entities based on pension funds or municipal development boards. The ‘social’ in social ownership should not be derived from one privileged economic agent—the nation-state—but from a plethora of differently constituted but accountable public bodies.

For most of the past 20 years, this would have all read like far-fetched socialism. But in the context of our current, deepening crisis, it highlights a very relevant question: at what point will a frontline politician dare to suggest that UKFI (the organisation which owns and directs part-nationalised UK banks) pursue objectives other than a narrow definition of 'value' to the taxpayer?

Many figures in the employee-ownership movement, including Charlie Mayfield Chair of John Lewis Partnership, have suggested that the government could support the creation of new types of ownership, by virtue of our semi-nationalised banking system. Could UKFI take a view on what types of businesses RBS and Lloyds-TSB should be supporting? Of course it could. But we'd then be heading back to the 'socialist accounting' debates of the 1920s. As of December 2011, I suspect that this turn towards active, 'social value banking' is unlikely to happen any time soon. But it will be interesting to see if and how UKFI becomes a live political issue over the course of 2012. There: my little tip for the New Year (the other one is 'Travel Chaos').

Thatcherism as tragedy then farce

In their excellent After the Great Complacence (which I'm pleased to see is on Paul Mason's Christmas books list), the CRESC authors point out that the Thatcher era has been subjected to remarkably little economic evaluation. Given the types of claims that were made about Britain's weak economy in the 1970s, they argue that the critical test of Thatcherism ought to have been private sector job creation. Yet they also show that 70% of private sector job creation between 1979-1997 came from transferring jobs out of the public sector, and into the private sector (i.e. privatisation, PFI and out-sourcing). If, of course, one believes that the real goal of Thatcherism was to weaken the power of organised labour, this transition no doubt achieved its goal.

North Sea Oil and financial services helped to prop up the public accounts from the mid-1980s onwards. Low wage service sector employment expanded as more women entered the labour market, making up much of the remaining 30% of private sector jobs not transferred from the public sector. According to the Resolution Foundation, female employment accounted for 27% of household income growth between 1968-2008, compared to 8% for male employment. All of which led Britain to feel quite smug by the late 1990s, as mainland Europe struggled with both service sector job creation and growth. There was even a new academic gloss which could be applied to all of this, in the form of Endogeneous Growth Theory (I wonder if anyone has evaluated how much the 'knowledge economy' delivered). New Labour added further jobs and growth via a growing public sector (again, see this CRESC paper on how little the New Labour era ever delivered in the private sector).

So one way or another, by hook or by crook, the neoliberal era delivered on some of its microeconomic and macroeconomic promises - at least until 2007 when it all started to go very pear-shaped. But in doing so, it really needs to be viewed as a series of accidents, good fortune and clever (if repeatedly short-termist) political strategy. The one thing that was never likely to work was the ideal which had always excited neoliberals when in exile: the heroic entrepreneur, creating wealth and jobs through sheer self-discipline and desire to succeed. This vision serves a useful role in coordinating neoliberals, when they feel marginalised and afraid (as Hayek et al did during the 1930s, and the proto-Thatcherites did during the 1970s) but as a basis on which to create national economic policy, it's nonsense. It's a wonderful campaigning tool, and a marvellously envigorating ideal. It may even serve to get the odd MBA student out of bed in the morning. But as a basis for economic policy-making, it's nothing more than an ideological rallying cry.

So just how the hell did George Osborne succeed in duping anyone into trusting in this ideal all over again? Maybe it doesn't matter. Maybe he was perfectly well aware that the public sector doesn't 'crowd out' gutsy entrepreneurs. If he'd ever stepped outside of Westminster or Oxfordshire for any length of time, he would surely have noticed that the 'march of the makers' was not about to begin any time soon (as if they'd all been biding their time, waiting for those pesky old Surestart centres to get out of the way, before founding the next Google). Even Osborne can't really have believed it.

And I wonder if anyone believed it. The Institute of Economic Affairs and Policy Exchange may have pretended to believe it. Maybe Policy Exchange were just expressing solidarity with the doddery old IEA, in the manner of humoring a mad old relative ("I know, it's very sad, but he means well") out of respect for their longevity. "Yes, grand-dad - Von Mises would get us out of this mess. Now would you like another cushion?" What they refuse to see, perhaps because they adopt the Hayekian ethos that "to be neutral means to have no answers to certain questions", is that the British have already been offered copious amounts of economic liberty, allied with unprecedented torrents of credit... and we used it to go shopping and live off an asset bubble. If ever someone was going to found the 'next Google', I'd have thought 2005 might have been a pretty good time, with banks and society awash with money and governments still paranoid about 'competitiveness', but it didn't happen. "That's right grand-dad, the socialists stopped it happening with their clever red tape. Now lets get you a nice mug of cocoa."

How is the argument supposed to work? That people become more determined to succeed on their own, the harsher environmental conditions become? I suppose one could point to a 19th century emigre economic culture, such as New York's, in which individuals strain extra hard, when they have everything to gain and nothing to lose. But the same argument has been made by the Archbishop of Canterbury to explain why young people go looting. There is a bizarre psychological premise at work in this vision, that when the chips are down, economic security is in decline and credit has dried up, human beings go and... set up businesses. Meanwhile, the flipside assumption is that when times are good, they stay at home and sponge off the state.

As an insight into human psychology, this is up there with the character from Human Remains who, when complaining about his next door neighbour's laziness, confides with the camera: "He claims to be depressed - but he's obviously not too depressed to lie in bed all day". It pre-dates forty years of research into economic psychology (which, elsewhere, the Conservatives have embraced) and the cultural character of post-1968 capitalism.

A worldview that originates in 1930s Austria, was mobilised strategically - and not uncynically - by US businesses and conservatives from the 1970s onwards, and was quickly falsified by the experiences of the early 1980s, has somehow had one final hurrah, to be falsified a second time. Maybe this shouldn't interest or bother us, seeing as it performed its brief task, of giving George Osborne something to say for the past 18 months. Maybe it's just 'ideology' or 'propaganda', as a comment on a previous blog post put it, and not to be taken remotely seriously.

But I can't help finding this farcical and a little melancholic. Was it a joke? Was Osborne being ironic, when he told us that the private sector would swiftly flood the space left by a receding public sector? What did he think this private sector would do or make, that it hasn't been doing up until now? Silicon Roundabout serves as a new semi-ironic answer to this question. The Right are repeating mantras that we've heard before, like punchlines to jokes that we've heard before and never laughed at in the first place. Post-speculative melancholia pervades the corridors of the Treasury too.

If we are to take Austrian economics seriously, the first thing to acknowledge is that Hayek et al would have had little truck with macroeconomic forecasting or the OBR's complex modelling, which disguise the fundamental uncertainty of our situation. Secondly, they would surely have warned against expecting any resolution any time soon. The crude vision of a sudden private sector rush, catalysed by a sudden shrinkage of the public sector (disproved viciously in the early 1990s in former socialist economies) is a naive modernist fantasy. In its place, the Austrians would have preached patience, with much pain along the way. Yet still the question would remain: can we be sure that 'enterprise' and 'entrepreneurship' are likely to be the emergent responses to this crisis?

A far more sophisticated guide would be their compatriot, Joseph Schumpeter, who stressed the evolutionary character of capitalism, whereby accidents and innovations alter its very building blocks, as well as how they put together. Like Marx, Schumpeter believed that eventually capitalism would evolve itself out of existence, or at least to something unrecognisable as capitalism. The Schumpeterian lesson is that we don't yet know what will get us out of this crisis. Nor do we even know if capitalism will get us out of this crisis. The answer certainly doesn't lie in 'business' or in 'government', presently understood, but in as-yet unthought-of institutional arrangements, which may change our very definition of what the 'private sector' or 'public sector' necessarily looks like. As Will Hutton argues, the most important legacies of major crises (such as that of the 1870s and '80s) are the creation of entirely new risk-sharing norms and institutions.

Nascent James Dysons aren't going to suddenly appear from their garages, wielding new technologies to export. And economic pain won't make anyone more likely to disappear into a garage to invent one. What it will do, we have to hope, is force people to co-operate and adapt, possibly to the fact that the neoliberal dream of an enterprising, capitalist private sector has now been lost for good.

we are the 99%... but who was the 99%?

The '99%' rallying cry is brilliant politics. It performs the ingeniuous move of defining its opponents according to indefensible values of unaccountable predatory elitism. Nobody can be in favour of that. In its rhetorical pitch, it heralds the end of the New Left, putting activists and the grass roots on the side of the vast majority, where the New Left had always sided with various disparate minorities. This new rhetorical knitting together of the mainstream middle classes with the tented Occupy movements is a strange new mutation in the critique of capitalism. Occupy has won endorsement from both David Harvey and Vince Cable. Now that's what I call a big tent coalition, Mr. Blair.

But beneath the impressive political strategy, there is a sociological question that needs asking: how long have we been the 99%? The last three years have thrown up endless new statistical and political analyses, showing how most of us have suffered thanks to neoliberal economic policy-making. The Spirit Level became an iconic moment in the history of British statistics. Winner-take-all Politics details the stitch-up that took place between Wall Street and Washington DC. Impressive campaigns by bodies such as False Economy (happy first birthday!) find new ways of communicating online that a tiny minority has robbed the majority.

In many ways, what is happening is that traditional Marxist assumptions are gaining new empirical foundations, but without the dialectical or revolutionary baggage. People like Peter Gowan dedicated great intellectual effort to showing how Wall Street and Washington worked in tandem, but nobody listened. Marxists have an explanation for this: false consciousness or ideology. People had an erroneous understanding of the world, which is now becoming corrected thanks to the financial crisis. Marxists have the strange privilege of being 'wrong' for decades at a time, and then spectacularly right when a crisis breaks, whereas neo-classical economists have the opposite one, of being 'right' for several decades at a time, then spectacularly wrong. (There's a serious question as to why governments don't employ at least one Marxist political economist, as a canary in the mine-shaft; Michel Aglietta used to work for the French Prime Minister, for example).

But I wonder, if only for academic reasons, what the 99% movement (whoever that may be) thinks that 99% of people were doing and believing during the heady 1990s and the barmy early 2000s. For example, one of the necessary preconditions of the financial crisis playing out as it did was the desperate hunger for mortgages in Britain, that could never have been served without securitisation, given the dwindling savings rate that accompanied it. This hunger came from normal people, wanting to get substantially wealthier, without doing anything to 'earn' that. They were not in the 1%, but their economic values were not substantially different and they had a symbiotic relationship with exotic finance.

It has been argued in the US that low income families were preyed upon by dodgy subprime mortgage-sellers and the policies of the Bush administration, which pushed them to become home-owners in defiance of all common sense. What is Britain's excuse? I haven't heard the equivalent. How does the 99% explain the foolishness of many of its members, in believing that they could live off rising house prices indefinitely? Were they being exploited by the 1%, or duped by neoliberal ideology? That was the opinion of bearded Marxists at the time, but I'd have liked to hear someone credibly express that view in 2005, as Carol Smillie smiled her way around another dazzling £100,000 refurbishment for the benefit of the viewers at home.

Even today, there is a hope that PLCs will behave better, if only their shareholders can act as better 'stewards'. The 99% demand that PLCs start to care about the environment and society, and expect 'active shareholders' to push them in this direction, cutting executive pay as they do so. Of course many of the 99% are also terrified about the value of their defined-contribution pension schemes, and would expect fund managers to seek the highest return on equity possible when investing on their behalf. This is a thorny contradiction, without an easy answer; but it is ridiculous to say that 'we' are not actively involved in creating it, or that 'we' are ignorant of what we're doing.

As I discussed in relation to the riots, sociologists and the Left need to think seriously about what type of agency they attribute to people in these situations. My suggestion is that we respect people sufficiently to take their agency seriously. There was no shortage of enthusiasm for neoliberalism, at least from the 1990s onwards, and it was majoritarian in its orientation. It even involved particular forms of self-interested majoritarian solidarity: think of how the NHS became increasingly untouchable as the 1990s wore on (because we all have bodies) and gay rights became politically normalised (being no threat to the majority). But 'welfare' only survived by being disguised as a 'tax credit'. Undoubtedly there were people who were exploited and marginalised during the boom years - unemployed single men did worse, minority groups such as asylum-seekers never won majority support, the elderly never attained the political backing that working mothers did - but that's the nature of democracy. There were various solidarities, movements and beliefs in the 1990s and 2000s, but they rarely started from a principle of altruism, scarcely from one of class or socialism and never - as far as I remember - from opposition to some '1%'. The hugely popular anti-war movement of 2003 was the shining, tragic exception in this regard.

What do we now say of these beliefs, desires and solidarities? That they were wrong all along? Does the 99% movement subscribe to an 'old Left' view of ideology as false consciousness? In that respect, it may have truly put the New Left to bed. Perhaps 'we the 99%' subscribe to a modified version of 'false consciousness', as defended by Amartya Sen in The Idea of Justice, as a perspective that is correct, but only from a particular and limited vantage point (rather like bounded rationality). Or else, like Keynes, 99% of us choose to change our minds when the facts change. That's fine as well, but lets at least be honest about the past.

One dissatisfying aspect of the new movements, as welcome as they are in so many respects, is that they depend on the notion that finance capitalism was a secret stitch-up between governments and finance, that occurred behind closed doors, as a conspiracy. But there are many ways in which it happened before our eyes. Lobbying networks were reasonably visible, the untouchability of the City of London was quite evident and pre-2008 books such as Andrew Glyn's Capitalism Unleashed offered a very cogent account of what was going on, and the interests that it was serving. It wasn't that this all happened in secret, it's that most people didn't give a damn, in fact a large number of people - somewhere between 1% and 99%, by my estimate - actively encouraged it and benefited from it. Without justification, public support and popular participation, it couldn't have happened.

No doubt I am missing a sophisticated Marxist analysis, of how a revolutionary class becomes self-conscious, and a crisis such as the current one would play a role in it. Yet large swathes of the 99% have only become dissatisfied for purely private, selfish reasons, just as they supported the NHS for purely private selfish reasons, or ceased to care about homosexuality because it didn't affect their private lives. Relaunching the left on the basis of majoritarianism and percentiles works very well rhetorically, and keeps crucial pressure on the banks themselves. But as the New Left argued, majorities also have skeletons in their closets and questions to answer, such as how they have been treating minorities and the politically powerless, and how enthusiastically they collaborated with the powerful. Like the German '68 generation confronting their parents, perhaps our children will one day ask us "what did you do during the great Millenial ponzi scheme, dad?". Claiming naive victimhood on behalf of 99% of people will only wash for so long.

macro-economic falsification

Here are three intriguing insights from economic conservatives:

Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with "what is," not with "what ought to be." Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields.

Milton Friedman, The Methodology of Positive Economics [pdf] (1953)

 

We should cut early, as deep as is feasible given time-tabling constraints. We need growth, and early cuts are likely to promote growth, even in the short term. There are three reasons why. First, at lower levels of public spending the economy is likely to grow faster. If the economy grows faster, then wages will grow faster. So households today will feel safe to borrow and consume more and to save less, knowing that their (pre-tax) incomes will be higher later, allowing them to pay off their debts. Investors will also expect better returns if growth is faster...

Andrew Lilico, Chief Economist, Policy Exchange, The Observer, June 2010

 

[The Office for Budget Responsibility] expect GDP in Britain to grow this year by 0.9% – and by 0.7% next year...The OBR have significantly reduced their assumptions about the spare capacity in the economy – and the trend rate of growth. And this increases their estimate of the proportion of the deficit that is structural – in other words, the part of the deficit that doesn’t disappear even when the economy recovers. So our debt challenge is even greater than we thought because the boom was even bigger, the bust even deeper, and the effects will last even longer.

George Osborne, Chancellor of the Exchequer, Autumn Statement, November 2011

I trust that any followers of Milton Friedman will have the good grace to accept when an economic hypothesis has been disproven.

Update: The New Statesman points towards a speech David Miliband made from the back benches yesterday, dismantling Osborne's claims about the sources of growth.

Further update: Andrew Lilico has explained why his theory hasn't yielded the expected results. It rather confirms IanC's intuition in his first comment below.

when is a market not a market? Seminar, this Thursday

Very short notice, but I'll be speaking at my alma mater, University of Essex on thursday evening, presenting a paper 'When is a Market not a Market?: 'exemption', 'externality' and 'exception' in European State Aid rules'. I use State Aid rules as an opportunity to develop a particular way of theorising neoliberalism, in terms of different ways of justifying and distinguishing markets. The riddle of neoliberalism lies in its paradoxical notion of state sovereignty, which is something that it both ignores and depends upon. What's interesting about the current crisis, especially in the European context, is that this paradox is now more naked than ever.

New Statesman essay: from New Times to End Times

I have an essay in this week's New Statesman, 'From New Times to End Times', reflecting on the state of capitalism, in the tradition and style of Marxism Today which closed twenty years ago. The article is taken from a forthcoming edition of the ippr's journal PPR, which will be dedicated to examining the contribution and legacy of Marxism Today, including articles by many of its leading figures. This builds on the ippr's excellent recent work on renewing the left's 'political sociology', including Graeme Cooke's Still Partying Like It's 1995. My essay argues:

What Stuart Hall named “Thatcherism” was in many ways a success story, both electorally and economically. A post-industrial path to prosperity appeared to be opening up, analysed as “post Fordism” and the “end of organised capitalism”. The recession of 1991-92 notwithstanding, this new path did indeed deliver substantial growth over the subsequent 20 years, and captured the political imagination. The economic and political conflicts of the 1970s and early 1980s seemed to have been ameliorated via a new ethos of cultural democracy, whereby individuals expressed themselves through taste, consumption and lifestyle choice. The message to the left was to take this seriously and engage with it.

Today, however, conflicts and crises merely multiply, often defying existing logic.We still have no clue as to the micro- or macroeconomic bases of future growth. The cultural egalitarianism of consumerism no longer looks so benign, after televised images of teenagers looting branded goods during the August riots in England. The left feels that levels of inequality are no longer sustainable – and that the opulence and self-gratification of the economic elite have become intolerable – but lacks either the language or the policies to act on this. Where capitalism was coalescing around a series of themes in 1991 – weightlessness, consumption, flexibility – today it is disintegrating but without simply returning to a pre-Thatcherite politics of class. The problem is that we feel less that we live in “new times” than in, as Slavoj Žižek suggests, “end times”.