The real crisis of capitalism

ECONOMIC

THE past week has been a time for recalling the events of September 2008, their long shadow over the economics and politics of the past ten years and for drawing the right lessons for the future.

In particular, did the financial crisis prove that capitalism is fundamentally unstable and that a new model involving greater control and a much bigger role for the state, as favoured by Jeremy Corbyn’s Labour Party, is a better one? Or, the fact that the guilty men and women mainly got away with it, meant that public anger over the crisis was never assuaged?

We should understand that the financial crisis did not begin on the weekend of September 13-14, 2008, which saw frantic but unsuccessful efforts to save Lehman Brothers, the Wall Street investment bank. The crisis had been simmering for well over a year, a period that saw the run on Northern Rock and the start of Britain’s deepest recession in the post-war period.

The bankruptcy of Lehman, announced on September 15, turned a smouldering crisis into a ravaging forest fire that spread rapidly around the world. Banks were bailed-out by free-market governments using public funds. Alongside near-zero interest rates, central banks including the Bank of England did things they never would have contemplated in normal circumstances, most notably quantitative easing (or the printing of free money). Governments spent vast sums of money that ran into the billions boosting their economies to ease the impact of the crisis, but on the basis that they would cut back later. Austerity, on a scale and duration not seen in this country since the Geddes axe of the 1920s, was the course chosen by the coalition government in 2010.

 

MOST of what people think they know about the past decade is wrong. The danger in 2008 was of a prolonged period of deflation – falling prices and economic depression, a modern version of the 1930s. The reality is that both were avoided. After the shock of the crisis the economy grew more slowly than had been the norm, but it grew. All advanced economies were afflicted by weaker growth.

Income inequality in Britain has fallen since the crisis, not least because the burden of tax faced by the highest earners has increased. This financial year, 2018-19, the top 1% will pay almost 28% of all income tax, compared with just over 24% in 2007-08, paying £12bn a year more in tax than before the near meltdown. The top 10% accounts for 59.7% of all income tax revenues, up from 54.3%.

Austerity, as practised by the coalition led by David Cameron and now by a Tory minority government under Theresa May, was never about shrinking the size of the state for ideological reasons. The coalition’s mantra before the crisis was that after the spending splurge under Gordon Brown, the “proceeds of growth” would in future be shared between tax cuts and increased public spending.

Even faced with the task of reducing an out-of-control budget deficit, Mr Cameron ring-fenced NHS spending and imposed a target of spending 0.7% of gross national income on foreign aid. A better criticism of Tory austerity is that too much of it involved cuts to government investment and that the process has dragged on for too long, partly because it was leavened with tax cuts, mostly for working people.

 

THE financial crisis and its aftermath were painful but too many Tories seem to have been cowed by it from making a robust case for capitalism. This leaves the way open for Jeremy Corbyn and John McDonnell, Labour’s anti-capitalist chancellor. When a privatised rail company messes up, or a housebuilding boss is awarded a bonus running into tens of millions of pounds, there is rightly an outcry. The crisis itself was the product, yes, of many greedy bankers and a few in handcuffs might have satisfied public opinion, but it was also the consequence of regulators whose job it was to stop them failing. In many cases, including the recent collapse of Carillion, many of these problems arise at the interface between the public and private sector.

Of course, we all want to return to a time when living standards are rising at a decent pace. That will be achieved only when productivity growth also returns to something approaching past norms. Capitalism in Britain has, since the crisis, delivered something like seven times the number of new jobs as those cut by the public sector. Unemployment is at its lowest since the mid-1970s. It is the private sector, not failed prescriptions of anti-capitalism, that will deliver prosperity in the future.

 

Transformational leadership is needed for a re-moralising of politics and society…

A NEED FOR THE MORALS OF POLITICS TO BE RE-EXAMINED

Intro: The desire for transformational politics is high given the moral challenges of today

We often hear people say that politicians are ‘all the same’, which infer a general objection to our technocratic, managerial political culture. During 2013, figures from outside the Westminster bubble unearthed a public yearning for leaders with the moral and ethical clarity to face many of our present woes.

The greatest need for moral leadership is at its peak during times of economic scarcity. The financial crisis of 2008 and the years of austerity that have followed have returned to the fore the ethical questions that were too often set aside and ignored during the pre-crash era. Political and economic questions such as, ‘How should limited resources be allocated?’, ‘What constitutes the good society?’, ‘What are the values that should underpin our economy?’, or, ‘Can individualism and the common good be reconciled?’ The public disillusionment with our political leaders and what their parties stand for can partly be explained by their direct failure to address these issues more convincingly. When politics is reduced to a game, and when party strategists continually seek to outmanoeuvre each other for short-term tactical advantage, it is unsurprising that the public turns away. The frequent cliché that they are ‘all the same’ is not an attack (as is often thought) on a perceived lack of policy divergence, but on the managerial and technocratic culture that political parties embody.

Behind such public apathy and disillusionment, there is a craving for answers to the moral challenges of our time and for national leaders who can at least attempt to provide them. The recent death of one of the world’s most respected statesman, Nelson Mandela, has made this even more so.

Noticeably, however, one of the trends of 2013 was the emergence of leaders outside the political circle who have shown considerable moral guidance. Pope Francis, for example, has revived his Church’s spiritual fortunes by reorienting it away from the conservative obsessions of same-sex marriage, abortion and contraception and towards issues of economic equality and social justice. Pope Francis has made a number of emblematic gestures since becoming Pontiff last March, including humble acts such as carrying his own suitcase, living in a modest hostel as opposed to the rich grandeur of the Vatican palace, the embracing of a disfigured man, and has communicated his vision of a church ‘of the poor, for the poor’. The moral denunciation by Francis of ‘unbridled capitalism’ has resonated all the more as a result of his church’s changing stance and position. After decades of steep decline, church attendance among Roman Catholics has risen significantly across the world, including in Britain too.

The Archbishop of Canterbury, Justin Welby, who was enthroned two days after the inauguration of Pope Francis, has, over the same period, reaffirmed the Church of England’s status as ‘a defender of the most vulnerable.’ He has openly condemned the coalition government’s welfare cap on benefits and for making children and families pay the price for high inflation, rather than the government. Mr Welby has denounced the usurious lending of payday loan companies and has been equally critical of banks in their desire to continually seek what is ‘legal’ and never what is ‘right’. Like Pope Francis, the Archbishop of Canterbury has demonstrated his Church’s values through deeds as well as words.

One need not share their faith to respect the moral clarity that both religious leaders have brought to issues of economic justice. There have been others, too, such as the comedian Russell Brand, who provoked a remarkably successful debate with his insistence that the solution to deepening inequality and rampant consumerism has to be primarily ‘spiritual’ and his declaration that profit is ‘the most profane word we have’, commanded public attention for almost a fortnight in a way few politicians can.

Whilst not standing for public election, neither the Pope nor the Archbishop of Canterbury faces the same kind of struggles to reconcile competing interests as many of our politicians must contend with. The political class can learn, though, from how they have engaged with fundamental questions and how previously dormant debates have been actively revived.

Some of our more thoughtful MPs from across the political spectrum have recognised the need for a different kind of politics. Jon Cruddas, Labour’s policy review co-ordinator, for example, called for a ‘reimagined socialism’ in his George Lansbury Memorial Lecture in November. Mr Cruddas called for a type of socialism that is ‘romantic, not scientific; humane and warm; passionate yet humble’ and one that ‘pushes back against party orthodoxy, careerism and transactional politics’.

The re-moralisation of our politics and society remains a deep desire five years after the financial crash. In leading that transformation, we still await the politician who can inspire and provide the transformational leadership many people are now demanding.