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.

Comments

[Rob]

"Nascent James Dysons aren't going to suddenly appear from their garages, wielding new technologies to export."

Strangely, I think you're expressing an even more romantic view of innovation and entrepreneurship than George Osborne is here. We don't really need genius-inventors-in-garages to give us new technology - there's no shortage of the stuff as it is, and forming businesses to take advantage of it is actually a dull lot of work that needs to be done. Entrepreneurs don't need to be Randian supermen, they just need to have a reasonably good idea of what people will pay for and how it can be made. There's more than enough money to be made in exploiting the stuff invented in the last 20 years, even if we never invented anything else. You could even argue that there's a boom in tech right now despite the bewilderment and despair elsewhere: when people are writing stuff like this, you know something's up. (Does the exuberance there qualify as a good sign, or is anything that looks like optimism just a delusion?)

Even the UK is seeing a mini tech boom; pay rates for software developers are going up relatively quickly, there's less of a shortage of funding for tech startups than there is for most other businesses. Betting that the future is going to involve more technology is still pretty safe.

We are still at the point where a greater supply of 'techies' would translate directly into greater employment and growth. We could happily employ thousands more than we do. Of course, this can be used as a right-wing critique of the education system: our problem, they'd say, is that people are doing useless humanities degrees when they should be learning how an iPhone works, and we need to unleash economic incentives to prod them in the right direction. I'm sympathetic to the goal of more techies, but I'm dubious about the notion that future expected ability to pay back student loans-that-aren't-really-loans is the best way of achieving it. The "march of the makers" is a great slogan but it may depend on some rather un-capitalist ideas of what is being made, for whom, and for what ends.

The question, I guess, is whether or not capitalism can figure out how to exploit the remaining growth opportunities. If it can't, then it's effectively dead and will be replaced, one way or another. But the challenge is as great or greater for any system that aspires to replace it, which is why declaring the death of capitalism isn't actually particularly useful.

[Dick Pountain]

If, of course, one believes that the real goal of Thatcherism was to weaken the power of organised labour

Which of course one does. One of the hard problems is to accept that conspiracy theories are sometimes true.

[CharlieMcxMenamin]

This post is just a tiny bit wonderful, even by your own high standards. Thank you.

I agree that Schumpeter is a better guide to the uncertainty of the future - but I'm not sure that Austrian economics, as opposed to mainstream neo-classical economics, ever had that much policy bite. The rhetoric and mood music of course, was distinctly Austrian.

[Will Davies]

Rob, with apologies for sounding like a cultural sociologist, but the romantic representation of entrepreneurship was deliberate. My point is that the faith that is being placed in entrepreneurs, the 'makers' and the private sector generally seems to rest on some very unrealistic ideas of how wealth is produced. The image of the geek in his/her shed is the sort of New Economy equivalent of the rugged individualism of Austrian economists. The fact that it doesn't correspond to very much reality is precisely my point. I could have put inverted commas around it, but I probably do too much of that already.

Thanks, Charlie. True, it's difficult to see what Austrian economics offers the applied policy-maker, other than to sit back and trust that things will be OK. This was something that Hayek (and Schumpeter, incidentally) were worried about: that their vision of progress and freedom was so abstract, so un-technical that it ran the risk of appearing non-existent. It didn't solve real world, here-and-now problems, and therefore risked being trampled on. Hence neo-classical economics partly plugged that gap, under 'actually existing neoliberalism'.

[IanC]

A great post.

I think we have to assume that Osborne really means it: if he doesn't, the energy required to be that cynical, ironic and futile would surely exhaust him in days. What keeps the neoliberal dream alive in the Tories, when experience shows it is a busted flush? I think the socio-economic isolation of the neoliberal elites must help. So does the mental path-dependency that keeps us attached to hopes and myths in the face of disillusioning experience. But surely one big factor - and it plays a part in the persistent EU-phobia of the Tories - is a kind of dream of the UK becoming more like the USA. So far all we have managed to do is try to consume on tick like Americans, but the dream seems to persist among Tory neoliberals , as it did in the 80s, that we can have what they imagine to be the USA's can-do start-up Randian culture of 'enterprise'.

[Rob]

"My point is that the faith that is being placed in entrepreneurs, the 'makers' and the private sector generally seems to rest on some very unrealistic ideas of how wealth is produced. The image of the geek in his/her shed is the sort of New Economy equivalent of the rugged individualism of Austrian economists. The fact that it doesn't correspond to very much reality is precisely my point. I could have put inverted commas around it, but I probably do too much of that already."

Yes, but in that case you're attacking a figment of someone else's ideology, which has no bearing on how actual markets work. You move from saying "capitalism doesn't work like this" (viz. geeks in sheds emerging blinking into the light, clutching the code for the next Google) to "capitalism doesn't work at all". Proving that the geeks-in-sheds theory is bollocks proves very little at all - you need to prove that there's not enough money to be made from genuine, run-of-the-mill new technology innovations to sustain a capitalist system. You might be right, but your views on geeks-in-sheds are as irrelevant as Osborne's.

[Kristian]

Good stuff.
Next time someone start going on about entrepreneurs I'll go get a blanket for their legs.