Yves here. The Tory leadership contest is a depressing spectacle. This post puts a spotlight on an element that hasn’t gotten the attention it warrants: the bankrupt economic policies of the two contenders, Truss and Sunak. Neoliberalism played a big role in the slow erosion of the UK, and more of that bad medicine will not make things better.
By Laurie Macfarlane, economics editor at openDemocracy, and a research associate at the UCL Institute for Innovation and Public Purpose. He is the co-author of the critically acclaimed book ‘Rethinking the Economics of Land and Housing’. Originally published at openDemocracy
Boris Johnson’s time as prime minister has been defined by a series of contradictions.
On the one hand, his approach to the economy has been markedly more interventionist than any of his recent predecessors. A new generation of state-owned bodies has been established, including the UK Infrastructure Bank, the Advanced Research and Invention Agency (ARIA) and ‘Great British Nuclear’. Numerous businesses have been nationalised in whole or in part, including the steelmaker Sheffield Forgemasters, the National Gridand large parts of the rail sector.
This has led some commentators to herald ‘the death of neoliberalism’ and former shadow chancellor John McDonnell to remark: “Johnson has carried out more nationalisations than any Labour prime minister since Harold Wilson.”
On the other hand, though, Johnson has doubled down on the kind of free-market fundamentalism imposed by his predecessors. Under the banner of ‘Global Britain’, he has promised a “bonfire” of domestic regulation to maximise the opportunities of Brexit, and struck trade deals that threaten to undermine social environmental standards. Most recently, his government has moved to deregulate the City of London and launched the biggest attack on trade union rights for a generation.
How will the two candidates seeking to be his successor manage these contradictions?
Liz Truss has run her leadership campaign largely on a platform of cutting taxes and curbing trade union power, while also pledging to be tough on crime. This platform has proven popular with Tory members, with polls indicating that Truss has gained a substantial lead over the former chancellor.
Rishi Sunak, meanwhile, initially opted to take a more cautious approach, prioritising ‘responsible’ public finances and ruling out personal tax cuts until inflation is “under control”. But in a last-ditch appeal to win over Tory members, this week Sunak announced he will cut the basic rate of income tax from 20% to 16% by the end of the next parliament if he becomes prime minister.
Despite their public disagreements, it is clear that the issues that divide the candidates are predominantly tactical rather than ideological. Both candidates resolutely believe that tax cuts and a smaller state are a route to prosperity. Both believe that Brexit will unleash the UK’s economic potential. And both look to Margaret Thatcher for the answers to the UK’s problems.
Truss’s plan to cut taxes and curb trade union power has strong echoes of Thatcherism, and some commentators have noted striking similaritiesbetween her campaign and that of the Iron Lady.
Meanwhile, writing in The Daily Telegraph, Sunak proclaimed: “I am a Thatcherite, I am running as a Thatcherite and I will govern as a Thatcherite.”
Whether or not the candidates would actually govern in Thatcher’s image remains to be seen. But one thing is clear: reheated Thatcherism is not the answer to the UK’s deep-rooted crises.
Many of the UK’s most pressing problems – from soaring inequalities and deindustrialisation to the housing affordability crisis and failing utilities – have their roots in Thatcher’s economic revolution. The failures of privatisation, deregulation and trickle-down economics underpin many aspects of Britain’s economic malaise.
Presenting turbocharged Thatcherism as the solution to Britain’s problems is therefore like trying to cure lung cancer by smoking a hundred cigarettes. The cure for the disease can never be its cause.
But the Conservatives aren’t the only party harking back to the past. This week, Keir Starmer set out his most comprehensive vision for the economy to date. According to the Labour leader, the party will fight the next election on the issue of “growth, growth and growth”. Prioritising economic growth is of course not new – it has been a priority of virtually every government in modern times. The question that matters is: what sort of model will be pursued to deliver growth?
For Starmer, the answer is to catalyse private sector investment and innovation, supported by pro-business government policy. In a clear departure from the party’s direction under Jeremy Corbyn, Labour has distanced itself from nationalisation and public ownership in recent years. Instead, a Labour government will focus on “working in partnership with business”. As Starmer told the Daily Mirror, “My priority is growth and partnership. Not an ideological attachment to particular models of ownership.”
What this partnership with business looks like remains to be seen. While in his speech Starmer talked about the need for an industrial strategy to “make sure this partnership grows our collective contribution”, elsewhere he has called for the UK to scale back financial services regulations to “maintain the City’s competitiveness”.
The hope it seems is that, with the right support, corporate Britain can turn the UK’s economic fortunes around. In turn, the proceeds from unlocking private sector growth will enable a Labour government to invest in public services and increase wages. “Without growth we won’t get a high-wage economy. And without growth we can’t revitalise public services,” Starmer said.
If this sounds familiar, it’s because it bears a striking resemblance to that of another former prime minister: Tony Blair.
The problem with this approach is that it overlooks the systemic causes of the UK’s economic troubles. In reality, large parts of corporate Britain are engaged in wealth extraction, not wealth creation.
From the financial sector to real estate, and utilities to pharmaceuticals, many of the UK’s most profitable sectors are engaged in a process of taking wealth away from workers and funnelling it upwards to asset owners. Profits are made not through entrepreneurialism and innovation, but by owning and controlling scarce resources – be that land, natural resources, monopoly networks, intellectual property, or money. In other words: one person’s gain is another’s pain.
Neither the reheated Thatcherism being offered by Truss and Sunak, nor the revamped Blairism being offered by Starmer, is proposing to confront the UK’s extractive model. The former will put it on steroids, while the latter will let it continue unchecked. As long as those are the choices we face, the UK’s deep-rooted economic problems are likely to remain.