The Covid-19 pandemic has exposed how fragile our economy is. We cannot continue to merely paper over the cracks. We must rebuild if we want our economy to be 21st century-proof.
What is Neoliberalism and why should you care?
Neoliberalism started with the Reaganite-Thatcherite revolution in the 80s. It has been characterised by a near-religious fanatic worship of ‘free markets’ and disdain for state intervention in the economy.
The neoliberal period has prioritised, above all else, trickle down finance led growth, with the promise that a rising tide will lift every boat. It is also commonly associated with: the defanging of organised labour, decoupling wage increases from productivity increases, the burgeoning gig economy, deregulation, financialisation, low taxes, welfare cuts, and privatisations (full or partial).
“many people refer to the 2010s as a ‘lost decade’.”
After the 2008 recession, neoliberal policy response gave us a K-shaped recovery. If we make similar choices this time, we’re likely to get similar results. Is this a good thing or a bad thing? Well, it depends largely on your socio-economic status. K shaped recoveries are great if you’re rich. But for the rest of us, not so much.
You may be able to tell that K shaped recoveries deeply entrench already existing inequalities, helping the haves and worsening life further for the have nots.
This is why many people refer to the 2010s as a ‘lost decade’. We learned that by making cuts instead of investing to stimulate growth, that we dragged the economic crisis out much longer than necessary. We also paved the way for the Covid-19 pandemic to be all the more devastating.
Assuming that the effects of the pandemic will be followed by a K-shaped recovery, as is widely predicted, a country still reeling from austerity will be in crisis. State interventions will be necessary to avoid this.
Rishi Sunak’s economic, fiscal and monetary policies so far this year have done this – they’ve felt almost Keynesian, in a marked break from laissez-faire Tory tradition. Boris Johnson has also gone to lengths to avoid the suggestion of austerity measures. As such, many had hoped that this indicated a permanent shift in policy.
It is for this reason that some were shocked by Sunak’s speech at the Conservatives’ virtual conference this weekend. Rhetoric returned to a much more familiar and hawkish ground of ‘fiscal responsibility’, ‘balancing the books’ and ‘addressing the deficit’.
Cobwebs were even swept off the – infuriatingly absurd – ‘household finance analogy’. I call this absurd because there are a few vital differences between government finances and individual household finances:
1. The government has access to unlimited and unprecedentedly cheap borrowing (currently at negative interest rates).
2. They can borrow over huge timeframes making regular payments proportionately small.
3. They can also get the Bank of England to simply print more money if we need to inflate away any unruly debts.
Households have none of these three options, and so treating the government’s finances like that of a household makes zero rational sense. There are not sufficient similarities for comparison.
Sunak’s economic dilemma:
Sunak’s interventionism played incredibly well with older Red Wall voters that the Tories managed to woo over at the last election. Such demographics are typically socially conservative and economically less so. This is a big reason why people were shocked by Sunak’s Tory conference speech.
“will this be the beginning of the end for neoliberalism?”
However, the traditional Tory base need to be kept happy too. And this strategic consideration could explain the change of tack from the Chancellor. The Conservatives’ two main constituencies want fundamentally different things and we’re about to find out which he’d rather risk losing support from.
Ending Neoliberalism is not just key to economic recovery, it is key to achieving social justice and equity. So, will this be the beginning of the end for Neoliberalism? It may still be too soon to tell – but with any luck, yes.
Dayna Latham
Featured image by Nick Kane on Unsplash. Image licence found here. No changes were made to this image.
Glossary:
- Deregulation – the removal of economic restrictions.
- Keynesian – relating to economic theories of John Maynard Keynes. It stresses the need for a market economy but with government interventions in the case of a recession / depression. It was the standard economic model for much of the 20th century.
- Laissez-faire – An economic system that exists without interventions / regulation.
- Fiscal responsibilty –
- Hawkish – An aggressive policy.
- Deficit – where expenses (spending) exceed revenues (income), meaning a country’s sum of money is too small.
- Privitisation – The process of moving things (e.g. a business, goods etc) from the public sector (owned by the government) to the private sector (owned by a particular company).