The government’s decision to bailout struggling airline carrier Flybe a year after it was bought by Richard Branson’s Virgin has been met with a mixed response. Environmentalists are appalled by the move, which runs contrary to the government’s target to reach net zero emissions by 2050. Meanwhile, right-wingers have made their traditional arguments against government interference in the market.
The government’s case is clear. Flybe is a key operator of domestic flights in the UK and employs more than 2,000 workers – the bailout, we are told, will protect both workers and regional connectivity. The media is casting the intervention as part of Boris Johnson’s plan to shore up the seats he won in former Labour heartlands in December.
For most of the past decade the Tories have made a traditional conservative case: any interference in the forces of Schumpeterian creative destruction that govern the corporate world will lead to unjustified inefficiencies, which will ultimately make everyone worse off.
For liberals, such interference is justified in the case of ‘market failures’ like climate change, air pollution and regional inequality. In these cases, it is up to the state – a monolithic institution operating in the interests of the general public – to regulate the market to internalise the negative externalities generated by unfettered free market competition.
Socialists should not be convinced by either argument. Viewing capitalism from the perspective of production, rather than focusing on the superficial level of the market, allows us to see that ‘free’ markets are no such thing. They are constructed by powerful actors and conceal massive inequalities between those who own all the stuff and those forced to sell their labour power to survive.
Understanding capitalism as a historical system also allows us to better understand the role of the state. Far from being a neutral arbiter or paternalistic enforcer, the role of the state under capitalism is to support the profit-generating activities undertaken by the capitalist class. The ‘debate’ between statists and free marketeers is in fact simply a debate between two sections of capital.
Johnson’s decision to bail out Flybe appears to place him firmly in the statist camp – a significant shift for a Conservative Party which, for the last forty years, has been one of the greatest champions of the free market.
The shape of the deal is uncertain at this point, but we know the government will be allowing the company to defer its payment of Air Passenger Duty (APD) and providing it with an emergency loan. These measures will act as a sticking plaster, allowing the company to continue to cover its costs and honour its commitments to creditors without solving Flybe’s central problems.
Johnson might think this statist shift is necessary to hold together electoral coalition that underpinned the Conservatives’ 2019 electoral success. By providing Flybe with emergency support he can claim to be acting in the interests of both the company’s 2,000 workers and the regions responsible for his victory.
But in a country where 85 per cent of the population is worried about the climate emergency, the reputational costs of using taxpayers’ money to bail out an airline that covers distances easily accessible via train might be more significant than the potential gains.
In fact, it seems likely that the government’s decision to bailout Flybe has more to do with protecting creditors, executives and shareholders from the impact of their decisions than it does protecting workers or regional connectivity. It is a prime example of corporate welfare being provided by a party that has spent the last decade cutting the UK’s social welfare regime to the bone.
Given the state of the British economy, it is not surprising that corporations are in need of this kind of support. The recovery from the financial crisis has been incredibly weak, with productivity stagnating for a decade. Uncertainty around Brexit, party politics and the state of the global economy is sapping business confidence. Many business leaders anticipate a recession this year or next.
Like many British companies, Flybe has taken advantage of very low interest rates over the last decade to increase its borrowing. The company’s debt levels may not have seemed unsustainable but, with fairly tight margins, it was vulnerable to a fall in revenues. This fall came in 2016 when the value of sterling started to tumble, spelling trouble for Flybe, which generates a substantial portion of its earnings in dollars.
Flybe is not unique on either front. British capitalism is highly globalised, meaning that many companies generate large amounts of their revenue overseas, rendering them vulnerable to currency fluctuations. And the UK has spent the last decade sleepwalking into a corporate debt crisis, which now stands at 80 per cent of GDP.
The kind of debt-fuelled zombie capitalism that has emerged in the UK since the financial crisis will continue to require state support if it is to avoid relapsing into periodic crises. Just as it did during the financial crisis, the British state will likely step in to alleviate the pressure on some sections of capital, whilst claiming to act in the ‘national interest.’
But any government really interested in reducing regional inequality would be committing itself to a properly-funded industrial strategy that would rebalance jobs and output away from the finance sector in London and towards manufacturing and services in the regions. And any government really interested in protecting jobs would be supporting the country’s unions and strengthening workers’ rights, not stripping provisions to protect them out of its trade deals.
Providing British companies with corporate welfare will allow Johnson to claim credit for moving to the ‘left’ on the economy without shifting the balance of power between labour and capital. This might be enough to secure support from some sections of the working-class, and it might be enough to defer the looming economic crisis likely to hit the economy in the next few years.
But it will not be enough to allow him to ‘fix’ British capitalism – and it probably won’t even be enough to fix Flybe.