Oh dear: Growth, Mr Osborne and the ‘UK economy’s’ lovely recovery (Part Two)

Spot the 'recovery'

Spot the ‘recovery’

Read Part One here.

The strange thing about neoliberalism – privatisations, deregulation, ‘the market always knows best’, tax cuts for the riches, implacable hostility to government intervention in the economy and the redistribution of wealth – is that despite the general, all-consuming obsession with economic growth, it’s not the best way of bringing it about.

Its fervid disciples will claim it is until the cows come home to find the dairy’s been closed and they’ve all been made redundant. It’s a way of growing the economy, certainly – very far from the best. But it’s definitely the most reliable way of growing the economy in a manner that benefits the richest people the most – in the same way that austerity isn’t the best and only way out of the financial crisis, just the one that inconveniences the rich and powerful the least, leaving them very well placed to consolidate their hold over politics and economics in the ensuing chaos.

The Bemolution happens to think that, in the West, we’ve long since hurtled past the point where growth leads to any meaningful improvement in ordinary people’s quality of life, and that now it does little more than enrich the already rich and do ever more grievous damage to the environment.

In fact, we think that the manic expansion we’ve seen since industrialisation will be a planetary one-off, never to be repeated. For thousands of years, the world economy barely grew at all. Then humanity discovered fossil fuels, and practically everything that’s come since, including our current, mind-bogglingly wasteful way of life, would’ve been impossible without them.

Now they’re running out. We blew them in one mad century-long binge, doing more environmental damage in 100 years than any other species has done in the previous 4 billion. And, mind-bendingly, we’re still left with a world where billions live on two dollars a day, tens of millions die for the most pathetically preventable reasons, while the bloated, oblivious West buys and burns and eats the planet closer and closer to ecological Armageddon.

We’ve got two options left, in our view – a kind of radical, egalitarian version of the steady-state economy first dreamt up by American economist Herman Daly, leaving ‘growth’ to the chronically underdeveloped bits of the global south that really need it. Or carrying on as-is, equalling the end of civilisation as we know it, and the extinction of much of life on earth. Growth-less socialism or barbarism, if you will.

But that’s by the by. Imagine for a minute you did want the economy to grow, and quickly. How would you do it?

If the economic orthodoxy we’ve all had drilled into our brains is to be believed, it’s simple. You radically reduce any sort of political control over the economy, because state intervention squashes individual initiative and prevents the emergence of entrepreneurial brilliance. Then you slash taxes on the rich, because the precious ‘wealth-creators’ need an incentive to work hard. Of course, employee protection for everyone else has to be cut too, and unions have to be heavily restricted – because ordinary people need an incentive to work hard.

And once you’ve made the rich richer and the poor poorer, you can sit back and watch as the naturally talented throw off the shackles of state interventionism, make mountains of money and fuel oodles of lovely economic growth. That’s neoliberalism.

But that all turns out to be rubbish. From the end of the Second World War to the 1970s, most of the major capitalist economies in the world were highly interventionist. And this resulted in one of the biggest, longest economic booms in economic history. The American economy, for example, was growing an eye-popping 4-5% a year, on average – this at a time when the highest rate of taxation never fell below 70%.

This economic model – state intervention, regulation and redistributive taxation – was replicated across the Western world. And when it was dispensed with, in a wave of privatisations and deregulations led by Mrs Thatcher here and Ronald Reagan over the pond, the new world that resulted was certainly more unequal and insecure – in America, the top tax band was slashed from 70% to 30%, in Britain, from 83% to 40%. In both countries, and many more that naively followed their lead, manufacturing was devastated, creating America’s Rust Belt and a post-industrial wasteland in the North of England. Unemployment rocketed. Poverty boomed. Incomes ballooned for the very richest, and the financial sector became the economic be all and end all – but the new economy still didn’t grow as much as the old one.

In the US, average growth fell to a comparatively paltry 2% a year in this new neoliberal era. Again, the results were replicated across the Western world – and, with a far higher human cost, across the developing one too.

Received wisdom has it that bungled interventionism across post-colonial Africa brought misery and stagnation to millions of people. And there were some disasters. But as development economist Ha-Joon Chang points out, the global South did far better under interventionism than it did under neoliberalism, firstly in the sense that its economies grew at all, and secondly in that the benefits of that growth were experienced far more widely. The median rate of per capita GDP growth in developing countries has been zero during the neoliberal era – and the very poorest countries went from growing 1.9% a year under ‘disastrous’ intervention to declining by 0.5% in the brave new post-interventionist world. By 2000, individual income growth in horrifically impoverished Sub-Saharan Africa was down 13% on where it was in 1980.

If you look at the most ‘successful’ – ie fastest growing advanced capitalist – economies in the world today, you’ll find they’re far less conventionally ‘neoliberal’ than is usually acknowledged. Countries like China, India, Taiwan and South Korea have certainly ‘liberalised’ in many areas, but are still staunchly interventionist in others. Superficially, a country like Singapore looks like a neoliberal wet dream. But about 20% of its entire economy is state-owned – that’s compared to a national average of 10% (it’s 1% in America). The Singaporean government funds between 20-50% of the country’s research and development. And like Switzerland, that other financial citadel, it’s one of the most industrialised countries in the world – their populations might be small, but proportionally, manufacturing makes up huge chunk of their economies, the biggest anywhere in the Swiss case.

About the only thing neoliberalism is best at, it turns out, is creating grotesque inequality. The Guardian managed to pick some very telling statistics out of the reams of data on George Osborne’s much-trumpeted economic recovery in the week the UK got back to ‘pre-crisis’ levels of growth. The richest 10% has seen its share of the national income increase even further in the years since the crash of 2007, and bottom 90%’s share has accordingly fallen. The wealthiest 1% has seen its slice grow from 8.2% to 9.8%, meaning that the wealthiest 300,000 have gained £15.4bn between them – partly thanks to Mr Osborne’s tax cut on people earning over £150,000 a year. The top 20% of earning households are now gobbling up 37.5% of all income growth.

But that’s always been the point of neoliberalism. Ensuring the rich keep getting richer, and keep consolidating their control over politics and the economy. The elite put up with mild redistributive measures during one of the biggest, longest economic booms in human history – because when economies are growing that fast, there’s enough prosperity go around. When that boom finally ended in the 1970s, there suddenly wasn’t, and the until-then relatively dormant rich lashed out, chivvying for a structural reorganisation of the way societies and economies worked that ensured their needs were put first. And thus neoliberalism was born. Redistribution was thrown into reverse – contrary to all the garbage spoken at the time about ‘trickle down’, wealth geysered up.

The economic crises of the 1970s require a long-winded, complex, counter-conventional explanation of their own – suffice to say, there are all sorts of reasons growth halted in the ‘70s. In our humble opinion, one colossal factor that gets routinely ignored – probably because it requires acknowledging the fundamental unsustainability of our way of life – is, to put it as simply as we can, that roughly everything Westerners really needed had already been achieved. Europe had been comprehensively reconstructed after World War 2. Most people now had houses and cars and tellies and washing machines.

The economy that existed up to that point certainly had frivolous elements to it, but it was still largely geared around doing and making things that were at least vaguely useful. And, suddenly, we’d reached a point where there wasn’t a ton of profit to be made doing that anymore. If we’d been sensible, we’d have stopped there – given up on growth and left it to the impoverished parts of the world that really needed it. Instead, there was a great swing to finance – making money out of money – and an even greater emphasis on faddish consumerism, making people want and buy things they don’t really need (hello iPhone 5).

But there was as an even more fundamental problem, which we still haven’t properly grasped decades later, despite it being blissfully simple and commonsensical – the bigger an economy gets, the harder it is to for it to grow more. As neo-Marxist economic geographer David Harvey likes to point out, it only took an increase of about $6bn to yield 3% growth in 1970. Now you need nearly $2trn, i.e. nearly two thousand billion, to get the same.

The irony is, looking back, if growth was your one and only concern, Western economies probably would’ve been better off carrying on as they were – or, ideally, becoming more interventionist. Either way, it was going to get harder and harder to achieve growth – and with the full heft of the state thrown behind the endeavour, particularly into research and development, growth could’ve been ‘farmed’ a bit more intensively than it was under neoliberalism. It would’ve been catastrophic for the environment, of course, but might at least of been a bit more equitable than what we got – a grossly unequal economy dominated by the financial sector.

‘Recovery’

Finance lets a tiny elite make incomprehensible amounts of money doing nothing of any broader social use. As it happens, it doesn’t bring about all that much economic growth either – largely because it results in very, very few becoming very, very wealthy, rather than resulting in a more general increase in prosperity and spending power for everyone. That’s really the main thrust of what you might call neoliberal growthism – the elite wants economic growth, obsessively, in fact. But only because it means more profits and higher incomes for itself. And that’s why it will plough away, trying to turn every facet of human existence into some kind of soulless monetary transaction it can make a killing out of, while continuing to beat down the long-suffering majority so they can’t do anything about it.

And horribly, even after a system-rattling crisis of capitalism, this process is intensifying, not relenting, to bring us right back to where we started with Mr Osborne’s economic recovery.

Canadian author-activist Naomi Klein talks about ‘the shock doctrine’ – her theory that extreme neoliberal reforms often get pushed through during some kind of crisis, either while everyone’s distracted, or, more audaciously, by passing the measures off as some kind of solution to the upheaval.

Austerity is exactly that. It’s a political strategy designed to take a crisis caused by the financial sector’s excessive power, unaccountability and profound detachment from the lives of ordinary people and blame it on ‘excessive’ government spending – thereby providing a perfect excuse to sell off what remains of the welfare state to private providers, slash government spending and accelerate the social polarisation of the last thirty years, making the rich so rich and the state so timid that the situation can never be reversed (although the elite is always careful to leave the government powerful enough to bail it out if needed).

The UK’s economic ‘recovery’ – really the largely South-Easterly top 10%’s – shows austerity is working. Wealth is being successfully redistributed from the vast majority to an ever richer, ever more untouchable elite. Osborne, Cameron and the Tories are on record as saying £25bn-worth of cuts are still needed – compare that to the £414bn amassed by the thousand richest people in Britain between 1997-2007 – and that, if they have their way, austerity will be ‘permanent’. It’s neoliberalism on steroids. That’s why it – and they – need getting rid of, post-haste, whether you like growth or not.