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The Crisis Last Time

The Labour government a decade ago stemmed the tide of financial disaster but failed to take the transformative steps needed to change the system. The next Labour government must be different.

The essential condition for a system of government to be sustained in the democratic era is the presence of widespread consent to the existing political, social, and economic arrangements. It is clear that this condition is breaking down all around us.

In Britain, three factors are often cited as giving rise to this breakdown: the false prospectus which was given as the reason for the war in Iraq; the MPs’ expenses scandal; and the unpunished behaviour of the bankers in the run-up to, and after, the crash in 2008.

Without doubt, each of these crises led wide sections of the public to conclude that the British establishment could not be trusted with the custody of the common good. But behind these three spectacular events, other processes were unravelling which have contributed to the fracturing of neoliberalism’s ideological hegemony.

That story begins with the 2008 financial crash. A crash was always likely; the consequence of profound internal contradictions within the deeply unstable model of financial capitalism. Its impact spread beyond the finance sector because finance itself had permeated into every corner of our economic life.

I was in No. 10 as parliamentary private secretary to the then prime minister, Gordon Brown, as the Labour government handled the fallout. Though it is rarely discussed, it was a classic social-democratic moment, with a Labour government acting with great speed to protect the common good against catastrophic market failure.

I don’t think we have had sufficient recognition of the actions of the Labour government at that time — without which substantial additional damage would have been inflicted.

Nonetheless, by the end of that government, the deep structural problems in the system had not been effectively challenged. We handled the immediate symptoms of the crash, but the country failed to resolve the underlying issues which had caused it in the first place.

The Left failed to harness the moment to achieve broader transformation. What was needed was resolute action to restructure the economy and break with decades of neoliberalism. That required more than amelioration.

By the time we arrived at the election in 2010, the Right had successfully reframed the crisis not as one of neoliberalism and market failure but as one of Labour overspending and a bloated public sector. They won the battle of ideas, and then they won power.

In the end, the outcome of all this was austerity: the social wage was reduced, public services were cut, those in receipt of benefits were squeezed, pay caps were placed across the public sector, and private sector wages were suppressed by programmes such as workfare.

We live with the consequences to this day. Attempts to reduce the deficit have placed the burden on the poorest while demand and consumption are increasingly upheld by credit.

Unsecured debt as a share of household income is now 30.4% — the highest it’s ever been, and above the level it reached in 2008 ahead of the financial crisis (27.5%). Debt per household has risen by over £4,000 since 2008, and as of the third quarter of 2018, the total amount of unsecured borrowing is £428 billion.

Meanwhile, despite the vast amounts of money pumped into the banks through quantitative easing, little found its way to businesses desperately in need of investment. Nationally, the amount loaned to small companies has declined by 27 per cent since 2009.

The left-wing think tank CLASS’s recent report illustrates how austerity has impacted people’s lives across the country. Eight million workers in the UK are now living in poverty; of those who said that they do not earn enough to keep up with the basic cost of living, almost half (45 per cent) said that their monthly shortfall was in excess of £100. Less than a third of the overall working population in the UK thinks that the economy is working well for them.

We have a low-wage, low-productivity economy, with low investment to boot — which means the gains of economic growth are going to an increasingly smaller segment of the population. We are a more unequal country, and much of this inequality is spatially distributed with whole regions being held back.

Austerity has imprisoned millions of people in a complex set of economic and social traps. This, in turn, has created widespread distrust in the British establishment and opened the door to the prospect of a socialist government.

But we will have to be bold. Transactional policies will not address the scale of the challenge. And triangulation will no longer work as the economic conditions on which it relied have ended. To be a transformational government means addressing the root of the problem.

Of course, we need to end austerity, but we will need to go much further. Our task is to redefine the boundary between the market and a renewed and transformed public realm; establishing equality as our watchword; and fighting for a different relationship with our planet.

Tribune can and must play a key role in this process; campaigning for socialism; exposing the gross inequities in our society’s current arrangements; building a widespread consent for our values; and constructing a new common sense to replace the old fractured ideas which have served us so badly.