British Capitalism After the Crisis
Scott Lavery
Sheffeld Political Economy Research
Institute (SPERI)
University of Sheffeld Sheffeld, UK
Building a Sustainable Political Economy: SPERI Research & Policy
ISBN 978-3-030-04045-1 ISBN 978-3-030-04046-8 (eBook) https://doi.org/10.1007/978-3-030-04046-8
Library of Congress Control Number: 2018961182
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To my grandma, Helen Burnett
A cknowledgements
This book would not have been possible without the intellectual input and personal support of a great many people. The book began its life as a Ph.D. thesis. I would like to thank my Ph.D. supervisor and Co-Director of the Sheffeld Political Economy Research Institute (SPERI), Colin Hay, for his invaluable engagement with my work. It was a great privilege to be supervised by Colin, and I have benefted immeasurably from his generous support throughout the research and writing process. I would also like to thank my second supervisor, Jonathan Joseph, for his encouragement and for his many insightful thoughts on the project. I would also like to extend my warmest thanks to Tony Payne, the co-founder and former Co-Director of the Sheffeld Political Economy Research Institute (SPERI). I was fortunate enough to receive funding for the Ph.D. from SPERI, and I am incredibly grateful to Tony and to SPERI for this opportunity.
Other colleagues at SPERI also strongly merit a mention. During the frst fve years of SPERI’s life, I was fortunate enough to share my workspace with a fantastic group of people. Craig Berry, Martin Craig, Adam Barber, Hannah Lambie-Munford, Tom Hunt, Sarah Boswell and Laure Astill all deserve a special mention in this regard. Jeremy Green, a former colleague at SPERI, has become an intellectual collaborator and good friend over the course of writing the thesis and this book. It has also been a pleasure to work alongside other colleagues—notably SPERI’s new Co-Directors Genevieve le Baron and Adam Leaver—as well as Andrew Baker, Liam Stanley, Kaisa Pietila, Patrick Kaczmarczyk, Edward
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Pemberton and many others within the SPERI offce over the past few years. All these people make the institute a brilliant and highly collegial place to pursue research.
Andrew Gamble and Matthew watson examined the original Ph.D. thesis and provided erudite feedback which helped me to transform the thesis into a book. I thank them both for their intellectual engagement and for the professional support which they provided me with throughout the early stages of my academic career. During my time at the University of York, it was my MA supervisor, Chris Rogers, who encouraged me to consider embarking upon a Ph.D. I would like to thank him for his support and advice during this period. The Department of Politics at the University of Sheffeld has also been an excellent place to study and to develop both intellectually and professionally. Thanks to the academic and administrative staff who make the Department such a good place to work. Matt Bishop, Owen Parker, Burak Tansel, Simon Bulmer and Andy Hindmoor all merit a special mention, alongside colleagues at SPERI who I mentioned above. Each has provided invaluable feedback on my work at various stages for which I am hugely grateful. I also made a number of very good friends within the Ph.D. community at Sheffeld who helped to shape my thinking in important ways. In particular, the neo-Gramscian reading group was a source of great inspiration and enjoyment for me. Davide Schmid, James Chamberlain, Robbie Pye, Sam Morecroft, Vanessa Bilancetti, Rasmus Hovedskov and Jonathan webb have all engaged in this group in a highly collaborative spirit.
I couldn’t hope for a better partner than Stephanie wardle who has been a source of incredible support, companionship and love over the past few years. Finally I thank my family—Fiona, Colin, Gavin, Gillian and Helen—for all the love and encouragement they have given to me over the years. without them, this book would not have been possible. I dedicate this book to my grandma, Helen Burnett.
viii ACKNOwLEDGEMENTS
ix c ontents 1 Introduction 1 2 British Capitalism Before the Crisis 15 3 Theorising Capitalist Stability 51 4 New Labour’s ‘Hybrid’ Political Economy 79 5 The Coalition’s Accumulation Strategy 109 6 The Coalition’s ‘Two Nations’ Hegemonic Project 153 7 After the Coalition: Towards a Transformation or Consolidation of British Capitalism? 183 8 Conclusion 217 Index 227
l ist of f igures
Fig. 2.1 UK real wage growth (1979–2013) (Source Offce for national statistics [ONS, 2014]. Average weekly earnings defated by RPI, percent change on the same quarter a year ago. Each interval point refers to Q1 of each year)
Fig. 5.1 Projected v. Actual Defcit Reduction (Source Adapted from: Van Reenen, 2015: 3)
Fig. 5.2 Regional House Prices, 2008–2015 (Source Nationwide House Price Index)
Fig. 5.3 Net Loan Acquisitions 2007–2015 (Source Offce for National Statistics. National Accounts)
Fig. 5.4 Savings ratio 2001–2014 (Source Offce for National Statistics. National Accounts)
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CHAPTER 1
Introduction
The global fnancial crisis of 2008 embodied the biggest shock to the capitalist system since the Great Depression. Crises on this scale have historically produced large transformations. The 1930s crisis destroyed the gold standard and eventually ushered in the Bretton woods settlement. The 1970s ‘stagfationary’ crisis unravelled the compromise of postwar capitalism and was followed by a far-reaching project of neoliberal restructuring. Many observers expected a similar transformation to occur in the wake of the 2008 crisis. The decade which followed the crash has been one of profound turbulence. But whether this ‘post-crisis’ conjuncture will give rise to a new capitalist order remains an open question. There is evidence of both continuity and change within post-crisis capitalism. On the one hand, deep public expenditure cuts, sustained real wage decline and welfare retrenchment intensifed across many advanced capitalist states. Neoliberal policy ideas proved markedly resilient whilst inequality intensifed (Schmidt & Thatcher, 2013). However, important shifts were also afoot in this post-crisis era. Central banks engaged in sustained programmes of ‘loose’ monetary policy, exemplifed by sustained low interest rates and the unorthodox monetary policy of Quantitative Easing (Green & Lavery, 2018). Despite these efforts, low growth and the danger of defation endured as threats to the advanced capitalist order. At the same time, anti-establishment forces and political parties on both the right and the left emerged, challenging some of the core tenets of the pre-crisis order (Blyth & Matthijs, 2017; watkins, 2016).
© The Author(s) 2019
S. Lavery, British Capitalism After the Crisis, Building a Sustainable Political Economy: SPERI Research & Policy, https://doi.org/10.1007/978-3-030-04046-8_1
1
This book focuses on the case of British capitalism after the crisis. It examines the extent to which British capitalism has been transformed by the 2008 crash and its aftermath. Four distinct phases of development can be identifed in the prelude to and the fallout from the 2008 crisis in Britain. First, between September 1992 and the 2008 crash, the British economy underwent a phase of relatively sustained economic expansion. During this period, unemployment fell, infation remained low and economic output expanded at a steady annual rate. At the height of this period, political elites claimed that Britain’s liberalised market economy demonstrated how economic dynamism and sustained non-infationary growth could be secured under conditions of globalisation. In 2006, the then-Chancellor of the Exchequer, Gordon Brown, infamously proclaimed that ‘boom and bust’ had been effectively abolished under his watch. Tight counter-infationary policy, ‘light touch’ regulation of the fnancial services sector, labour market fexibilisation and ‘prudential’ macroeconomic management had produced, he claimed, a period of sustained and apparently stable economic expansion within Britain. with the 2008 crisis, this phase of economic expansion came to an abrupt halt. From March 2008, the UK entered the deepest economic downturn which it had experienced in the post-war period. Subsequently, under the newly formed Coalition government, Britain narrowly averted a ‘double dip’ recession in 2012. Economic growth throughout this period was consistently low. This phase of protracted economic stagnation had a profound impact on the structure of the British economy. Between 2008 and 2013, productivity growth fatlined, as the UK recorded its worst productivity performance in over 45 years (Jones, 2013: 2). Private investment fell by 10.5% between 2010 and 2013 (Lee, 2015: 23), whilst public investment simultaneously collapsed by 40% (Van Reenen, 2015: 3). Real wages fell by 10% between 2008 and 2015, meaning that Britain experienced the largest real terms wage cut of any European economy with the exception of Greece (TUC, 2016). At the same time, attempts to eliminate the budget defcit—the annual amount of borrowing required to fnance the difference between government revenues and expenditure—were consistently frustrated due to weak tax receipts and lower than expected economic growth. Sixteen years of economic ‘boom’ were followed—contrary to the expectations of New Labour’s ‘Iron Chancellor’—by the largest ‘bust’ which the British economy had experienced since the Great Depression.
2 S. LAVERY
Throughout the latter half of the 2010–2015 parliament, it appeared that the British economy had fnally entered into a phase of economic recovery. By the spring of 2013, relatively strong GDP growth became established once again, registering at 1.7% in the second quarter of this year. This increase was then sustained for eight successive quarters, such that by April 2015, GDP per capita fnally returned to its pre-crisis peak. On a range of headline economic indicators, the British economy began to strongly outperform many comparator states within the European Union (EU). Employment increased markedly—the Coalition government claimed by around 2 million—making Britain, in the words of the Prime Minister David Cameron, the ‘jobs factory of Europe’ (Cameron, 2015). By 2015, the budget defcit—although not abolished as had been initially promised by the Chancellor George Osborne—had been reduced by half. Confdence seemed to be returning to the British economy, as consumer spending increased and business investment began to pick up. After half a decade of relative stagnation, the British economy had returned—or so it was claimed—to a renewed wave of economic expansion and private sector-led growth.
The Coalition had implemented a deep programme of public expenditure cuts. But in the aftermath of the 2015 election, it appeared that the crisis had been contained. Growth and employment were rising. The architects of Britain’s austerity experiment—the Conservative Party under David Cameron and George Osborne—unexpectedly secured a parliamentary majority. Under the surface, however, a new wave of turbulence was emerging. Cameron had committed to holding an ‘in-out’ referendum on the UK’s membership of the European Union (EU). In 2016, the British electorate voted to ‘leave’ the EU, ending forty years of membership and pitching the UK into a prolonged period of political and constitutional crisis. In its aftermath, Cameron resigned and was replaced by Theresa May. The May government committed to a ‘hard’ Brexit, leaving the Single Market and the Customs Union, ending the jurisdiction of the European Court of Justice and ending budgetary contributions to the EU. Statist interventionism re-emerged in the early phase of the May government, as she sought to colonise seats in Labour’s heartlands (Pabst, 2017). At the same time, the Labour Party—under the leadership of Jeremy Corbyn—advanced a populist left economic programme which secured a high level of support during the 2017 general election. A distinctive post-crisis British politics had emerged. A decade after the 2008 crisis, a potential transformation in British capitalism was in the making.
1 INTRODUCTION 3
theorising continuity And chAnge in British cApitAlism
The four phases of development outlined above provide the temporal backdrop to this book. Throughout, the frst phase of development, from 1992 to 2008, will be referred to as the ‘pre-crisis conjuncture’. The second, third and fourth phases, from 2008 to 2018, will be referred to as the ‘post-crisis conjuncture’. The core objective of this book is to determine the extent to which Britain’s model of capitalism in the post-crisis conjuncture embodied a continuation of or a rupture with the model of capitalism which had been in place throughout the ‘pre-crisis conjuncture’. The extent to which institutional or policy change can be identifed of course depends on which policy area or institutional complex one isolates in one’s analysis (Marsh & Stoker, 2010: 228). Insofar as the existing literature has attempted to examine continuity and change in Britain in the post-crisis period, there has been a tendency to focus on a range of distinct policy spheres in relative isolation from one another. For example, existing research has examined inter alia reforms to Britain’s post-crisis fnancial regulatory architecture (Baker, 2013; Bell & Hindmoor, 2015), changes to social policy and public service provision (Grimshaw & Rubery, 2012) and shifts in the strategic positioning of political parties under conditions of fscal austerity (Hayton, 2013). whilst these approaches offer valuable accounts of continuity and change in this period, this book advances an analysis of post-crisis British capitalism from a different perspective. Specifcally, it deploys a conceptual framework which seeks to identify the ways in which seemingly disparate spheres of social activity are in fact embedded within—and are in turn constitutive of—emergent, relatively unifed and integrated regimes of capitalist development. This approach is broadly in line with the understanding of political economy as advanced by Andrew Gamble and his collaborators, who propose that, ‘social orders and the institutions which make them up need to be studied as complex wholes rather than as analytically distinct parts’ (cited in Clift, 2014: 5). This commitment to studying the political economy holistically requires that we deploy a conceptual framework capable of moving beyond analysis of distinct policy areas studied in isolation from one another. Rather, we must advance a theoretical framework which can identify the emergent properties and underlying tendencies of a given social and economic order.
4 S. LAVERY
within political economy, a number of approaches have been advanced with this basic objective in mind. For example, comparative political economists have attempted to map the distinct ‘varieties of capitalism’ (VoC) which are in evidence across western nation states (Hall & Soskice, 2001). The VoC approach draws attention to the ways in which distinct national institutional confgurations can give rise to divergent logics of economic development which tend to endure over time. Other approaches of a ‘regulationist’ orientation have attempted to distinguish between distinct ‘regimes of accumulation’ whereby underlying economic models become embedded within and effectively stabilised by complementary institutional forms (Aglietta, 1976; Boyer, 1990; Jessop & Sum, 2006; Overbeek, 1989). In each case, the objective is to transcend a narrow focus on distinct policy areas in order to identify the underlying social, economic and institutional mechanisms which give rise to relatively coherent patterns of capitalist development over time.
In this vein, this book draws upon and develops a literature which emerged in the aftermath of the 2008 crisis which I term the growth model perspective (Crouch, 2009; Finlayson, 2009; watson, 2010; see also Engelen et al., 2011). This literature argues that although the British economy generated (seemingly) stable economic growth throughout the pre-crisis conjuncture, it simultaneously incubated a series of deep structural weaknesses which rendered it peculiarly exposed to the 2008 crisis (Hay, 2013; Hay & Payne, 2015). Advocates of this growth model perspective argue that British capitalism had been underpinned by a distinctive—and ultimately unsustainable—dynamic of ‘privatised Keynesianism’ throughout the pre-crisis conjuncture (Crouch, 2009; Hay, 2013). At its core, this growth model rested upon relative real wage stagnation, fnancial market liberalisation and asset-price infation. This gave rise to a situation whereby economic growth became increasingly tied to rising levels of private indebtedness, debt-fuelled consumption and persistent current account defcits (Crouch, 2011; see also Engelen et al., 2011; Stockhammer, 2015). In contrast to dominant narrations of the crisis—which argued that the crash was caused primarily by ‘profigate’ borrowing on the part of the New Labour government— the growth model perspective argues that the large increase in Britain’s budget defcit and public debt levels were symptoms of a deeper failure, namely the country’s over-reliance on expanding levels of private debt and on economic activity concentrated in and around the fnancial services sector (Hay, 2013; see also Streeck, 2014).
1 INTRODUCTION 5
The growth model perspective provides us with a good framework through which to identify and analyse the mechanisms which underpinned British capitalism throughout the pre-crisis conjuncture. However, the approach is also limited in a number of respects. In particular, it tends to privilege analytically those forms of state intervention which were ‘functional’ to—or in other words actively facilitated—the fnancialisation of the British economy throughout the pre-crisis conjuncture. The growth model perspective tends to focus on state interventions which encouraged fnance-led expansion either through macroeconomic policy or through cultivating the emergence of ‘fnancialised subjectivities’ amongst citizens (Finlayson, 2009; Langley, 2007; watson, 2010). As a result, the growth model perspective deploys a highly limited conception of the state which fails to account for the ways in which government actors are typically oriented towards securing a range of divergent—and often incompatible—social and political objectives. Between 2000 and 2008, Britain’s fnance-led growth model was fanked by the largest real terms increases in expenditure on public services in the post-war period (Smith, 2014: 618). This expansion in public spending helped to stabilise British capitalism in a variety of ways, not least through increasing levels of public sector employment and in sustaining aggregate demand in regions which would otherwise have been excluded from the dominant growth dynamic (Ertürk et al., 2011). However, these developments are not reducible to the ‘logic’ of Britain’s fnance-led growth model. They were the outcome of a range of social and political pressures and strategic considerations on the part of state actors. The growth model perspective—in its current form—is not suffciently developed to grasp these dynamics.
This book overcomes this limitation by integrating a more robust theory of the state into the growth model perspective. In this regard, the book draws upon and develops the neo-Marxist tradition of state theory (Jessop, 1990). Neo-Marxist state theory begins from the premise that capitalist states are typically driven to simultaneously secure two related—but often contradictory—objectives. First, states must secure the conditions for continued accumulation over time (Offe, 1984). Advanced capitalist states are formally separated from the economy in the sense that there are certain (socially determined and often legally codifed) limits on the extent to which government can intervene within the ‘private sphere’ of economic activity. This means that the capitalist state is in essence a tax state (Gamble, 2014; O’Connor, 1973). If it is to perform its core functions—for example
6 S. LAVERY
to provide basic services or to maintain social order—it must ensure that the conditions for continued taxable economic activity are in place. On the other hand, state managers must at the same time secure the conditions for continued legitimation over time. This means that government actors—in particular those who operate within the political constraints of the modern democratic state form—are not exclusively concerned with securing continued economic growth. Rather, policymakers are persistently driven to engage in patterns of state intervention which are oriented towards securing a degree of popular support within society. These dual accumulation/ legitimation imperatives can in certain conditions complement one another. However, they can also confict. The analytical implication is that analysis of advanced capitalist state interventions should not—as is the case with the growth model perspective—focus narrowly on the ways in which the state can actively support particular growth models over time. Analysis should also interrogate the ways in which the state is typically oriented towards securing other social and political objectives, including the need to secure legitimation. In turn, analysis should account for how these alternative patterns of interventions can either stabilise or compromise the developmental logic of the dominant growth model.
It is here where the book makes a break with the growth model perspective and offers an alternative conceptual framework for tracing the evolution of British capitalism throughout the pre- and post-crisis conjunctures. The existing growth model perspective focuses on what can be termed the accumulation strategy pursued by state managers throughout the pre-crisis conjuncture (Jessop, 1990: 216). It identifes how state intervention throughout this period actively encouraged the development of certain economic sectors and ‘fnancialised’ subjectivities over others. However, this means that the legitimation strategies—or in Gramscian terms the ‘hegemonic projects’—advanced by actors operating within the state remain relatively neglected in the analysis. The result is that the growth model perspective neglects the ways in which core state functions—such as its capacity to impose tax liabilities or to increase social expenditure—are typically deployed in order to secure the support of strategically signifcant social groups. The growth model perspective therefore misses the ways in which these interventions can ‘fank’ and stabilise growth models over time. Drawing upon neo-Marxist state theory improves upon the ‘growth model’ perspective in three ways. First, it offers a more compelling account of how phases of capitalist stability can be secured within a given conjuncture. Second, it allows
1 INTRODUCTION 7
us to distinguish analytically between forms of state intervention oriented towards facilitating the expansion of a given growth model and forms of state intervention oriented towards securing a popular base of support within society. Third, and crucially, it allows us to identify analytically and to periodise continuity and change across different phases of capitalist development in terms of the accumulation and legitimation strategies deployed by state managers (Jessop, 1990; Jessop & Sum, 2006). This reformulated ‘growth model’ perspective provides us with the conceptual framework around which the subsequent comparative analysis of the political economy of New Labour and the Coalition is organised.
core Arguments of the Book
This book examines the extent to which British capitalism has been reconfgured since the 2008 crisis. In line with the periodisation outlined above, the book is organised around an examination of two broad periods: the ‘pre-crisis’ conjuncture (1992–2008) and the ‘postcrisis’ conjuncture (2008–2018). The core argument is that whilst the Coalition government re-established Britain’s pre-crisis growth model, it broke with legitimation strategy which New Labour had advanced in offce. This re-embedded a series of structural weaknesses which are likely to shape the future trajectory of British capitalism. The emergence of a distinctive and volatile post-crisis British politics—exemplifed by Brexit, May and Corbyn—are symptoms of this deeper structural malaise. whether these post-crisis developments are likely to lead to transformation or a consolidation of British capitalism remains an open question. In advancing this thesis, fve distinct arguments are made throughout the course of the book. It is worthwhile anticipating these briefy here.
1. New Labour established a ‘hybrid’ regime of social and economic development which temporarily stabilised British capitalism throughout the pre-crisis conjuncture
New Labour presided over a period of relatively stable economic expansion. In this period, New Labour advanced a distinctive hybrid regime of social and economic development. On the one hand, New Labour’s approach was underpinned by a fnance-led accumulation strategy. As argued by advocates of the growth model perspective, the New Labour government sought to embed a model of economic development which
8 S. LAVERY
systematically privileged the preferences of international creditor institutions whilst further advancing the fnancialisation of the British economy. On the other hand, New Labour’s political economy was also organised around a distinctive—albeit imperfect and limited—‘One Nation’ hegemonic project. This sought to secure and extend New Labour’s popular base of support by channelling material concessions and symbolic rewards to the social base. This dimension of the New Labour project was driven by a range of political considerations, including internal party pressures, electoral calculations and a residual commitment to some redistributive social goals. In accordance with this political orientation, New Labour substantially boosted spending on public services from 2000 onwards—in particular on health and education—which resulted in substantially increased levels of public sector and state-supported employment particularly across the ex-industrial regions (Tomlinson, 2012). Additionally, this dynamic was fanked by a series of (often covertly employed) redistributive social policies which channelled resources to low- to middle-income households. These policies played a key role in reducing relative poverty, constraining the growth of income inequality and mitigating the uneven development of ‘Anglo-liberal’ capitalism throughout the pre-crisis conjuncture (Joyce & Sibieta, 2013). In contrast to existing accounts of New Labour—which have tended to characterise the Blair and Brown governments as either ‘neoliberal’ or ‘social democratic’—New Labour established a distinctive hybrid regime of social and economic development which effectively, but only temporarily, stabilised Britain’s model of capitalism throughout the pre-crisis conjuncture.
2. The Coalition effectively re-established the conditions for a renewed wave of ‘fnance-led’ growth in Britain, albeit in a modifed form
This conception of New Labour’s ‘hybrid’ regime of development provides us with a benchmark against which to conceptualise continuity and change under the Coalition in the post-crisis conjuncture. To this end, the evolution of the Coalition’s economic programme in offce is traced in order to establish the extent to which this represented a continuation of or a rupture with the accumulation strategy which had been pursued by New Labour. In this regard, it is shown that from 2010, the Coalition’s economic policy was underpinned by two ostensible objectives: to eliminate Britain’s budget defcit within one
1 INTRODUCTION 9
parliament and to ‘rebalance’ the British economy in favour of exports and savings. However, in each case, the Coalition failed. The Coalition’s austerity programme eroded tax receipts and undermined defcit reduction. Growth, when it returned, was driven by rising consumption and the collapse of household savings. At key strategic moments, the Conservative-led government abandoned key elements of its programme in the light of political calculations. The result was that by the end of the parliament, the Coalition had not substantially transformed Britain’s fnance-led growth model. Rather, it effectively re-established, albeit in a modifed form, the basic conditions for a renewed wave of ‘privatised Keynesian’ growth in the future.
3. The Coalition deployed a distinctive ‘two nations’ hegemonic project which aimed to secure a limited but durable base of support for further fscal consolidation and private sector-led recovery in the future
whilst we can identify continuity in the re-establishment of Britain’s fnance-led growth model, the Coalition effectively broke with the legitimation strategy or ‘One Nation’ hegemonic project which New Labour had advanced in government. In a context of fscal austerity and reduced tax revenues, the capacity of the Coalition to build support through channelling material concessions and symbolic rewards to the social base was highly constrained. Instead, we can identify the emergence of a distinctive ‘two nations’ hegemonic project under the Coalition which sought to secure a limited but durable base of support for its governing programme. The immediate post-crisis context generated a series of relatively novel distributional trends. In particular, the incomes of non-working households were protected relative to ‘in-work’ households and public sector pay was protected, for a period of time, relative to private sector pay. In response to this, the Coalition successfully constructed and entrenched a series of ‘moralised antagonisms’ between workers/working-age beneft claimants and private/public sector employees. In this way, the Coalition government sought to secure a limited but durable base of support for its economic and social programme under conditions of fscal austerity.
4. The emergent regime of development established under the Coalition has consolidated a series of structural weaknesses and imbalances at the heart of British capitalism. These are likely to destabilise social and economic development in the future
10 S. LAVERY
Taking the above four points together, then, the core argument of this book is as follows: that whilst the Coalition effectively re-established the fnance-led growth model which had been placed throughout the pre-crisis conjuncture, it effectively broke with the legitimation strategy which New Labour had pursued in offce. This has a number of important implications. First, contrary to the initial claims of the Coalition, British capitalism was not fundamentally ‘rebalanced’ away from the fnance-led growth model which had been in place in the pre-crisis conjuncture. As a result, the structural weaknesses associated with that growth model are likely to endure and even intensify into the future. Second, Britain’s pre-crisis model of capitalism had been stabilised—temporarily and imperfectly—by enhanced public expenditure and state-led employment creation (particularly in the exindustrial regions) as a result of New Labour’s ‘One Nation’ hegemonic project. In contrast, under the Coalition these fanking mechanisms were no longer in place to the same extent by the end of the 2010–2015 parliament. As a result, new forms of capitalist instability, social antagonism and uneven development are likely to emerge within British capitalism in the future.
5. A distinctive form of post-crisis British politics has emerged since 2015, exemplifed by the evolving politics of Brexit, the May government and Corbyn’s Labour Party. Whilst each of these contains the potential to precipitate a transformation in British capitalism, profound structural barriers to reform remain
The fnal sections of the book examine the period after the Coalition. In 2015, it looked like the Conservatives had effectively contained the fallout from the 2008 crisis. Britain’s fnance-led growth model had been re-established and the Conservatives now held a small majority in parliament. However, trouble was bubbling under the surface. Three political developments emerged in this period which set unleashed a period of deep volatility within British capitalism. The emergence of Brexit, the evolution of the May government and the rise of Corbyn’s Labour Party together arose out of the deep structural malaise which had set in during Britain’s post-crisis conjuncture. Each of these forms of post-crisis British politics promised to transform various aspects of British capitalism. However, profound structural barriers to reform remain in place. whether post-crisis British politics brings about a transformation or consolidation of Britain’s dysfunctional model of capitalism remains an open question. Thinking through the conditions which could bring about a transformation of British capitalism remains a crucial task, both intellectually and politically.
1 INTRODUCTION 11
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CHAPTER 2
British Capitalism Before the Crisis
Between 1992 and 2008, British capitalism experienced a phase of relatively stable economic expansion. Infationary pressures were contained, growth rose consistently, and unemployment remained low across the country. However, under the surface, deep structural weaknesses endured within British capitalism. This chapter engages with a body of literature—the ‘growth model perspective’—which argues that Britain’s pre-crisis growth model was underpinned by a dangerous dynamic of ‘privatised Keynesianism’ (Crouch, 2009; Hay, 2013b). This growth model emerged out of the breakdown of the post-war settlement of ‘democratic capitalism’. It generated high levels of private debt across the economy which in turn underpinned aggregate demand and economic growth. This rendered the British economy peculiarly vulnerable to the 2008 fnancial crisis. However, the growth model perspective is underpinned by two weaknesses. First, it deploys a limited conception of the state which privileges analytically forms of intervention which were ‘functional’ to fnancialisation processes. Second, the growth model perspective struggles to explain how British capitalism was stabilised throughout the pre-crisis conjuncture. A broader theory of the state is therefore needed if we are to adequately capture the distinctive regime which underpinned British capitalism throughout the pre-crisis conjuncture.
© The Author(s) 2019
S. Lavery, British Capitalism After the Crisis, Building a Sustainable Political Economy: SPERI Research & Policy, https://doi.org/10.1007/978-3-030-04046-8_2
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the long trAnsformAtion of British cApitAlism
In the pre-crisis conjuncture, British capitalism was underpinned by a distinctive growth model of ‘privatised Keynesianism’ (Crouch, 2009). This growth model had its origins in the long transformation of British capitalism which had taken place during the post-war era. Since the crisis of the 1970s, Britain along with other western capitalist states had experienced the breakdown of what wolfgang Streeck has termed ‘democratic capitalism’ (Streeck, 2014). ‘Democratic capitalism’ refers to the distinctive ensemble of social, political and economic institutions which emerged in the aftermath of the Second world war and which laid the foundations for rapid economic expansion throughout the USA and western Europe. This settlement was underpinned by a distinctive mode of economic development—characterised elsewhere as a ‘Fordist’ accumulation regime—which effectively combined mass production with mass consumption (Overbeek, 1989: 55). Productivity increases—driven by an intensifed division of labour, ‘rational’ state planning and the utilisation of new production techniques—generated a ‘virtuous’ growth dynamic, whereby rising real wages and government expenditure underpinned rising aggregate demand and economic expansion.
This framework represented far more than just a ‘technical’ economic framework; it was at the same time fundamentally political in the sense that it relied upon an unwritten social accord between capital, labour and the state. On the one hand, the organised working class accepted markets and property rights in exchange for a range of democratic rights and social entitlements. This settlement guaranteed citizens a minimum level of social security as well as rising living standards (Streeck, 2011: 10). On the other hand, markets were embedded within a system of social regulation which established defnite limits on the legitimate scope of the commodifcation process (Streeck, 2011: 16). For example, fxed exchange rates and capital controls limited the mobility of speculative capital fows across national borders, the growth of the welfare state softened the disciplinary effect of unemployment, and the development of free ‘collective bargaining’ arrangements placed limits on capital’s control over wage rates and the labour process.
In the immediate post-war period, this framework generated impressive economic growth, full employment and rising living standards across the advanced capitalist societies. In turn, this consolidated the legitimacy of the post-war social order from the perspective of both labour and
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capital (Streeck, 2014: 79). However, whilst this model of development temporarily displaced distributional and social confict, it did not abolish it permanently. Rather, this regime rested upon a ‘forced marriage’ between democracy and capitalism (Streeck, 2014: 4). It effectively—but only temporarily—reconciled two competing principles of resource allocation, ‘one operating according to marginal productivity…[the] ‘free play of market forces’, and the other based on social need or entitlement, as certifed by the collective choices of democratic politics’ (Streeck, 2011: 7). Insofar as democratic capitalism continued to generate economic growth, these latent conficts could be managed through macroeconomic intervention. However, from the late 1960s onwards, proft rates began to decline rapidly amidst rising infation, growing turbulence in the international commodity markets, an upsurge in labour militancy and falling rates of private investment. In an effort to restore proftability and to regain control over the labour process, business interests increasingly agitated for policies which would discipline the rising expectations and the political power of the organised working class. As a result, those institutions which had hitherto limited the scope of the market—powerful trade unions, extensive systems of social protection and the public ownership of key frms and sectors—were increasingly subject to politically coordinated retrenchment (Glyn, 2006: 122; Harvey, 2005).
The 2008 crash and its aftermath can be read as the most recent phase in this ongoing, long decomposition of ‘democratic capitalism’ (Streeck, 2014). Since the late 1970s, ‘market justice’ has increasingly emerged as the dominant principle of resource allocation. However, attempts to establish and maintain this ‘market liberal’ distributional framework tend to be hugely disruptive (Polanyi, 2001). As capital progressively extricated itself from the parameters imposed on it by the post-war settlement, government offcials were increasingly faced with the question of how to ensure that this process did not provoke a wider legitimation crisis or political crisis of the state (Burnham, 2011; Habermas, 1975). Streeck’s argument is that from the mid-1970s onwards, the institution of money played a key role in containing the effects of the breakdown of ‘democratic capitalism’ by displacing the social and distributional conficts which might otherwise have destabilised this process into the future. On this basis, Streeck periodises capitalist development since the 1970s in terms of three distinctive ‘monetary fxes’ which have ‘bought time’ for—or avoided a social crisis of—the emergent market liberal order.
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First, from the early 1970s onwards, infation played a key role in temporarily preventing distributional conficts from undermining the political basis of the state (Streeck, 2014: 33). Since Second world war, successive western governments had based their legitimacy on securing the conditions for full employment and on ensuring rising living standards for their citizens. Consequently, as economic stagnation began to set in, governments across the west calculated that it would be highly risky to impose defationary policies on their citizens. Rather than implementing rapid cuts or abandoning their commitment to full employment, governments instead adopted a monetary policy which allowed wage increases to outstrip productivity growth (Streeck, 2014: 32). In the frst half of the 1970s, this allowed for relatively high levels of employment to continue and for nominal wages (at least in highly unionised sectors) to be protected in relative terms despite the economic downturn (Sachs & Gordon, 1983: 257). However, this dynamic could not endure indefnitely. Rising infation devalued national currencies and eroded the confdence of international and domestic creditor institutions. As a result, private investors increasingly withdrew their capital from circulation, compounding the defationary spiral and increasing the social and political pressures on the Keynesian national state in the process (Jessop, 2002).
By the early 1980s, western governments—led by the administrations of Ronald Reagan and Margaret Thatcher—began to implement radically defationary policies (Jessop, Bonnett, Bromley, & Ling, 1988). After the ‘Volcker Shock’ of 1981, interest rates were hiked further and unemployment rose across Anglo-America (Hall, 1993: 283). Although this served to discipline the wage demands and political power of organised labour, the huge increase in unemployment simultaneously increased pressure on governments’ welfare budgets (Farrall, 2006: 272). At the same time, the tax base contracted as corporations and high-income earners successfully agitated for large tax cuts. Consequently, public debt increased rapidly from the late 1970s onwards across the advanced capitalist states (Streeck, 2014: 8). This process benefted holders of capital in two ways. Lower rates of taxation meant that corporations and wealthy households held onto far larger portions of their after-tax income. At the same time, increased levels of public debt meant that these same social groups could lend their savings back to the state—through purchasing
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government bonds—at a considerable proft (Blyth, 2013; Hager, 2015). Growing public indebtedness therefore represented the second ‘monetary fx’ which emerged in the period after the 1970s, as the costs of rapid defation were displaced into the future via the public balance sheet (Streeck, 2011: 14).
This mechanism could not be deployed indefnitely. By the late 1980s, government defcit and debt levels had ballooned. International creditors increasingly began to question the creditworthiness of sovereign debt (Streeck, 2014: 36). There were also concerns that large levels of government borrowing would ‘crowd out’ private investment by artifcially raising the cost of credit. As a result, by the early 1990s, western governments—led by Bill Clinton in the USA and by John Major in Britain—set out to reduce their budget defcits through further rounds of expenditure cuts. This programme of fscal consolidation could have provoked a social crisis, not least because the substantial cuts proposed occurred in a context of constrained wage growth and growing inequality. As such, fscal consolidation could have seriously undermined household spending power and aggregate demand. However, once again, a ‘monetary fx’ came to the rescue. As defcit reduction was implemented across Britain and America, the systemic importance of the fnancial sector—which had already expanded rapidly throughout the 1980s—increased further still (Streeck, 2011: 17). Thus, although public debt as proportion of GDP was held relatively constant or even declined across AngloAmerica in the 1990s and 2000s, total debt continued to rise rapidly, driven by huge increases in fnancial services and household debt. The ‘delayed crisis of democratic capitalism’ thus entered a third phase whereby rising private indebtedness increasingly came to underpin rising consumption and economic growth. These distributional shifts— as we shall see in the following section—formed the backdrop to the regime of ‘privatised Keynesianism’ which formed the core of Britain’s growth model in the pre-crisis conjuncture (Crouch, 2009).
As the above summary suggests, Streeck’s argument traces the prolonged decomposition of a relatively stable institutional order—what he terms ‘democratic capitalism’. This captures what has been referred to elsewhere as the ‘deconstructive’ elements of the restructuring process which followed the 1970s crisis (Cafruny & Ryner, 2003). However,
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