From One Crisis to the Next

As the financial crisis of 2008 unfolded, unemployment increased, wages fell, and millions were pushed into poverty. Meanwhile, those whose greed and recklessness lay behind the crisis were insulated from the consequences of their actions in the name of protecting ‘the economy’.

Just a few years later, the UK government announced cuts to public spending that were so severe they were eventually condemned even by the IMF, which is known for pushing extreme austerity programmes all across the world. The United Nations referred to austerity as a ‘social calamity’ that had seen living standards ‘descend precipitously in a remarkably short space of time’.

While cuts to public spending made the poor even poorer, extremely loose monetary policy made the rich richer. The Bank of England sought to revive economic growth by cutting interest rates to record lows and by creating new money that was used to purchase assets, such as government and corporate debt. With all this new money entering financial markets, asset prices exploded, generating massive capital gains for the wealthiest in society.

But not even an extraordinarily loose monetary policy could revive the pre-crisis economic model. The ‘privatise, globalise, and financialise’ strategy only worked for as long as there were new assets to sell, new territories to enter, and new debt to create.

In the decade following the financial crisis, productivity stagnated for the longest time since the invention of the lightbulb. Productivity is supposed to be the main factor driving long-term increases in economic growth. So, naturally, in its absence, growth stalled too.

Between 2014 and 2020, annual economic growth didn’t exceed 2.4 per cent. And what little growth there was certainly didn’t benefit workers, who in the ten years following the crisis suffered the longest stagnation in wages since the Napoleonic wars.

It was at this point that the world was hit by a pandemic that threw globalisation into reverse once again. With ports shut down, workers unable to get to factories, and consumers unable to leave their homes, the networks of production and consumption that underpinned the global economy suddenly ground to a halt.

Capitalism can only survive through perpetual motion, and the pandemic threatened to bring the whole system to its knees. So, once again, wealthy states stepped in to provide almost unlimited support to big businesses and financial institutions.

The year 2020 was the worst for real wage growth since the Second World War. Meanwhile, the number of UK billionaires reached a record high. Once again, the world economy had been saved from catastrophe, but at the expense of exposing the cracks in the system.

These new fragilities were rapidly revealed with the advent of the cost-of-living crisis. The proximate causes of the crisis were pandemic-related supply chain issues, a fall in energy production, and the war in Ukraine.

But while these factors were important in explaining the onset of inflation, its longevity was the result of something else. Policymakers claimed that greedy workers were demanding wage increases that were unaffordable for their financially stretched bosses. As a result, central banks started to raise interest rates in the hopes of inducing a recession, increasing unemployment, and breaking workers’ bargaining power.

In fact, the cost-of-living crisis was driven not by workers but by corporate greed. Large, monopolistic corporations had exploited the inflationary environment to raise prices more than their costs. The result has been ballooning corporate profits in sectors like energy, finance, and infrastructure, while working people have been pushed further into poverty.

What Really Broke Britain?

Looking only at the headline economic statistics such as GDP and productivity, the story looks pretty simple: things were going well until 2008; and then there was a big crisis whose impact lasted at least a decade, followed by another big crisis in 2020, the impact of which is still being felt.

The conclusion you might draw from this relatively shallow analysis is that the unfortunate — but ultimately unpreventable — disasters of the financial crisis and Covid-19 have left permanent scars on the British economy.

But this is only half of the story. Every single country in the world was, in one way or another, impacted by each of these events. Yet the UK seems to be falling farther and farther behind.

On the face of it, this regression is quite difficult to explain. Take productivity, for example. Economists remain utterly mystified why productivity growth was so poor in the UK in the aftermath of the financial crisis. In 2008, for some reason, the UK just became a much less productive place.

But the mystery only remains unsolved when viewed through a very particular lens, one which seeks to disconnect ‘the economy’ from broader social and economic factors.

This is a fantasy derived from a particular school of economic theory, which posits that people view their interactions only as opportunities to maximise their self-interest — generally conceived in narrow economic terms.

According to this view, the government’s role is to ensure that the rules governing these interactions are in line with the principles of free-market competition. With the right rules, and the right subjects, productivity growth should emerge naturally from the technological change and innovation that take place as a result of the competitive process.

Explaining the sudden stagnation in productivity (and much else!) through this lens is almost impossible. After all, why should a financial crisis — one successfully managed through massive state intervention — have such a lasting impact on an economy’s output per hour worked?

However, when you reintegrate ‘the economy’ with ‘society’, the answers are more forthcoming.

What the UK experienced through the financial crisis, austerity, the pandemic, and the cost-of-living crisis was a slow but profound process of social breakdown. The systems responsible for reproducing the human labour that creates value in capitalist societies are all crumbling. And the result is a crisis in the ‘real’ economy.

Because, contrary to neoliberal arguments, a country is not like a business. Businesses rely on a pool of cheap and skilled workers that they can hire in the so-called labour market. States, on the other hand, create the conditions within which labour markets can exist.

If you’re looking for a leading reason why Britain is falling apart, it’s this: the state has stepped back from doing the things that support a healthy society and a vibrant economy — all in the name of more effectively disciplining workers.

Life Support

There is a widespread misunderstanding about the nature of capitalist economies, which are seen to be divided between free markets, on the one hand, and states, on the other.

According to this view, the economy is the site of market interactions, and states are purely political entities in which powerful people make decisions about who gets what.

In other words, when you add in more state, you get less market; and when you add in more market, you get less state. We saw this simplistic mindset at work a great deal during the Covid-19 pandemic, when journalists around the world declared that ‘socialism’ had arrived simply because the state was doing more to support the economy.

In fact, the state is not a fixed entity whose role it is to regulate markets and hold back greedy capitalists. The state itself is a site of class struggle. The outcomes of the battles that take place within it tend to reflect the balance of power within society as a whole. And in capitalist societies, the side favoured by capital tends to win.

This is why the banks were bailed out after the financial crisis, while working people were made to bear the costs of massive cuts to public services. It’s why big businesses received huge Covid loans, while millions of workers lost their jobs. And it’s why corporate profits have gone through the roof, while central banks are raising interest rates to curtail workers’ bargaining power.

But, as well as enriching individual capitalists, the capitalist state must also act, create, and maintain the conditions required for production to take place. Infrastructure must be built, legislation enacted, and workers trained. And, sometimes, these two goals conflict. Britain is broken, in large part, because the first of these two aims was prioritised over the other. When it comes to physical infrastructure, our ports, roads, and railways are suffering from a woeful lack of investment — not to mention our power, water, and energy systems. And many parts of the nation can barely access broadband.

When it comes to social infrastructure, the situation is even more precarious. Every single public service upon which we rely to stay alive, and stay productive, is in a state of utter disrepair. There has been a huge increase in the number of people off work due to mental or physical ill-health. Why? Because public health budgets have been cut, so it has become harder to prevent illness before it emerges. Because waiting lists for specialist care and surgeries are through the roof, conditions are left to fester. And emergency care is at breaking point, meaning that many people die or face permanent injuries because they cannot access the care they need in good time.

Millions of people also experience chronic stress and mental health conditions. Why? Because they can barely afford to pay their rent or mortgage, let alone their skyrocketing utility bills. Because they are juggling work with family as prices are too high to allow them to access childcare. Because they work extremely long hours in difficult conditions, and they barely have time to rest and recover.

And millions more simply never live up to their potential in a society that discards them as ‘waste’. Why? Because education budgets have been cut and there is little good-quality training, so many never get the education or training they need. Because children’s social care services have been decimated, meaning many at-risk young people are more likely to end up homeless or in the criminal justice system. Because those who face barriers to work are chastised for being lazy and forced into inappropriate work rather than supported to achieve their potential.

It costs a certain amount to reproduce a road. It costs a little more to reproduce a human being.

But it costs even more than that to reproduce the social bonds that keep a society together. People need to know that, if something goes wrong, they have people or institutions to rely on. Without that basic sense of security, we become stressed, angry, scared, and alienated. Over the short term, that might mean greater profits for capitalists. But over the long term, it implies widespread social decay. A society of angry people is a powder keg waiting to explode. And no matter how hard they might try to manipulate this anger for their own gain, not even the most skilled amongst our political class can control it — or predict where it will lead next.