Friedrich Hayek once argued that if you put the word ‘social’ in front of a noun, the meaning was negated. Social justice wasn’t about due process; social democracies didn’t safeguard freedom.
For those on the left, who can never have enough social-isms, there is a more toxic prefix. If you want to damn something, stick a ‘neo’ in front. Nothing is quite as wicked as a neoconservative, but coming dangerously close is a neoliberal. Liberals were once generally supposed to be the squishiest of centrists. But listen to the men and women making the weather in British politics now, and you’d imagine that neoliberals were the horsemen of the apocalypse. Andy Burnham has blamed ‘40 years of neoliberalism’ for the problems faced by workers in Makerfield, and indeed beyond. The banking crisis, low growth, youth unemployment, decaying high streets: it was neoliberalism wot dunnit.
The denunciation of ‘trickledown economics’ as a neoliberal failure gets things precisely the wrong way round
George Monbiot, in one of the Guardian’s most-read pieces, perhaps did more than most to define the nature of the villainy: ‘Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling… Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone.’
There is one problem with the criticisms of neoliberalism. They in no way reflect the reality. Free markets, liberalisation, competition, privatisation and deregulation, far from being poison pills, actually powered this country into the 21st century as the fastest-growing large economy in Europe. In the decade between 1995 and 2005 – when the neoliberalism which Burnham and Mon-biot reject was arguably at its untrammelled peak – average incomes for working-age families grew by 35 per cent.
The decline in the growth of living standards dates from the point when the state started swallowing more of our income again, and neoliberalism began to retreat. Since 2005, average incomes for working families have grown by just 7 per cent in 20 years. Forecasts suggest this could be the worst parliament for living standards since records began in 1961 – the second consecutive record low. What marks out both parliaments is a growth in taxation, spending, borrowing and regulation.
Burnham rightly identifies the financial crisis of 2007-08 as a hinge moment. But we in the UK have made the consequences of the crisis worse over time with the very policies Burnham pleads for now. We have had massive interventions to regulate the labour market and make hiring workers more expensive. The minimum wage has been hiked so much it is the fourth highest in the OECD even after adjusting for the pound’s purchasing power. And we are all paying the price. Since its introduction, prices are up 97 per cent, GDP per head by 154 per cent, but the minimum wage has outpaced them all, growing at more than 253 per cent. The result? Wage compression – the squeezing of the gap between low pay and average earnings – is now far tighter than it was in the USSR at communism’s peak.
Our tax system is hardly a neoliberal construct. Over recent years – under the Tories, indeed – it has become increasingly ‘progressive’ and redistributive. Politicians on the left calling for us to ‘finally tax the rich’ are ignoring the fact we’ve spent years doing that more and more. By the end of this decade, the number of higher-rate taxpayers will have doubled to nine million.
At the end of the 1970s, the top 1 per cent paid 11 per cent of all income tax; they now pay more than a quarter – despite the top rate of tax being cut from 83 to 45 per cent. Zoom in further and it’s even more clear: the top 0.01 per cent (4,000 taxpayers) pay more than the bottom quarter (some eight million Brits).
Combine these facts and you discover two even more inconvenient truths. Burnham in his diagnoses of broken Britain criticises recent governments for not focusing on in-equality. But factor in taxes and all the benefits which are paid out and the truth is that income inequality is the lowest it has been since the 1980s. Wealth inequality has barely changed in the past decades too – and where it has ticked up it reflects the growing housing-fuelled gerontocracy more than anything else.
The problem with blaming neoliberalism is not merely that it is wrong about the reasons for our slow growth – it also keeps us from questioning the mistaken beliefs that really explain why we’re where we are.
The Monbiot/Burnham denunciation of ‘trickledown economics’ as a neoliberal failure gets things precisely the wrong way round. As the American economist Thomas Sowell must by now be tired of explaining, ‘economic processes work in the directly opposite way from that depicted by those who imagine that profits first benefit business owners and that benefits only belatedly trickle down to workers. When an investment is made, whether to build a railroad or to open a new restaurant, the first money is spent hiring people to do the work. Without that, nothing happens.’
That fundamental misunderstanding leaves us in real trouble. The disastrous £25 billion raid on employer national insurance contributions has destroyed 270,000 jobs and exacerbated the youth unemployment crisis. Why? Because the economists to whom Labour listens see employers as monopoly men who create billions through exploitation and market manipulation.
Neoliberalism stands falsely accused. The real culprit is a political culture that has brought about the replacement of aspiration with dependency. We have become a nation of beggars. Never have we asked for more from the state. Energy crisis? Cap our bills. Hot inflation? Subsidise our tickets to Peppa Pig World. Private pensions underperforming? We weren’t told our capital was at risk! Quadruple lock now!
In his vision, Burnham’s Britain should be one of rising wages, affordable homes and meaningful, dignified work. But that Britain is one we were well on our way towards, with the help of the ideology and reforms he now scorns. The problem is not that we had too much neoliberalism. The problem is that we stopped progress in its tracks.
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