Covid has forced a neoliberal retreat. But state intervention is not always gradual | Laurie Macfarlane
Tthirteen years after the financial crisis brought the world economy to life, neoliberal capitalism faces an existential crisis. The Covid-19 pandemic has exposed the dire consequences of decades of privatization, deregulation and outsourcing. In order to contain the economic fallout from the pandemic, Western countries have torn up the neoliberal playbook.
Market forces have been avoided in favor of regulatory controls and state intervention. Central banks have broken the ultimate economic taboo and are print money to finance inflated budget deficits. For the first time in decades, the direction of corporate tax rates is up rather than down. Even the International Monetary Fund (IMF) has thrown its weight behind wealth taxes. As Guardian columnist Larry Elliott recently put it: “The era of small states, low taxes and balanced budgets suddenly seems to be over.” The question that remains is: what replaces it? In the UK, a number of recent developments are providing clues.
The first relates to the spectacular return of state activism and the loss of confidence in free markets. This is not limited to Covid response measures, as important as they have been. After decades of selling public assets, the UK government has started to create a new generation of public economic agencies. These include the UK Infrastructure Bank (Ukib) and the Advanced Research and Invention Agency (Aria), both of which have considerable financial strength. The British state has also become one of the the largest venture capitalists in Europe via the Treasury’s Future Fund, which took substantial shareholdings in the capital in hundreds of UK startups. Regional policy, long viewed with skepticism by free market economists, has also made a comeback in the form of a “race to the top” agenda.
The rapid development of the Oxford / AstraZeneca vaccine also marked the return of planning and industrial policy. Although Boris Johnson attributes this success to “capitalism” and “greed,” the reality could not be more different: 97% of funding for vaccine development came from state or charitable funds, while less than 2% came from private industry. The central conclusion of an independent report A review of the lessons learned from the UK vaccine experience was that “the government has played a key role in accelerating every step of the vaccine development process”. At the same time, the government’s decision to intervene in the sale of chip designer Arm Holdings to the American company Nvidia on national security grounds suggests that the UK’s ‘hands off’ approach to foreign takeovers has been replaced by a more assertive stance.
Taken together, these developments indicate that neoliberalism is dying in Britain, at least for now. But those who have long dreamed of the demise of neoliberalism should think twice before popping the champagne. A more assertive state does not inherently lead to more gradual results. Instead, we must ask ourselves: in whose interests is the state intervening?
In the UK, unprecedented levels of state support to the economy have been accompanied by what appears to be widespread cronyism and potentially corruption. Lucrative Covid contracts have been awarded to companies with personal and political relationships to government ministers. As the Greensill and Dyson the lobbying scandals show it, it seems that cronyism is spreading at the highest level of government. Ministers were also taken repeatedly interfering in major planning decisions on behalf of political allies and party donors. Sleaze is not new to British politics, but the scale and courage we have witnessed over the past year is unprecedented.
Meanwhile, questions remain about what the new government agencies will do and what interests they will defend. Ukib is under development not to supplant private funding, but at “Risk-free” investments for private investors and guarantee private profits. The beneficiaries of the Future Fund are shrouded in secrecy, while Aria was dispensed from freedom of information laws which generally apply to all UK public bodies. The new £ 4.8bn leveling fund has been allocated across the country not on the basis of deprivation rates but political allegiance to the Conservative Party.
In other words: the UK sees the emergence of a new political economy that is comfortable with the role of the state as “Promoter, supervisor and owner of the capital”, provided that it serves particular interests and is protected from democratic control.
The second new development is the rise of the surveillance economy. Even before Covid-19, concerns about big-tech and surveillance capitalism were mounting, but the pandemic has accelerated growth data economy in two ways. It has moved a large amount of activity online, which means people now have a much larger digital footprint than before. And this has led to the emergence of new forms of medical tracking and tracking, which creates a distinct set of new challenges.
With vaccines now being rolled out across the country, the UK government has started testing the use of vaccine passports. The implications of this could be far-reaching, ranging from facial scan in pubs travel restrictions, which would open up new divisions in a country that was already fragmented. And with the valuable NHS database now in the hands of ‘special ops’ tech firm Palantir, experts fear the tentacles of surveillance capitalism may soon gain access to our personal health data.
Surveillance has also increased in the workplace, especially as the line between work and home has blurred during the pandemic. This includes the increasing use of remote monitoring software and even webcam surveillance to monitor the “productivity” of workers. Homework should become a permanent feature of British capitalism, there is a risk that Amazon-style surveillance of warehouse workers will be rolled out across the economy.
The third and final development is a renewed emphasis on law and order, and an associated repression of democratic rights. Around the world, temporary draconian measures have been introduced to control the spread of the virus. But the UK is looking to go much further. Not content with banning protests during the pandemic, the government is using the public health crisis as a cover to make these measures permanent through the Police, Crime, Sentencing and Courts Bill.
Liberty human rights organization described the bill as “an attack on fundamental civil liberties” which “will dangerously tip the balance of power in favor of the government”. As well as dramatically restrict the right to protest in perpetuity, the bill creates new powers of stop and search and criminalizes trespassing – measures which could allow state harassment, intensify racial profiling and threaten the way of life of Gypsy and Traveler communities.
For economists who see their discipline as a “worthless” science separate from politics, this could be uncomfortable ground. After all, what do the police have to do with the economy? The real answer is “a lot”.
Capitalism is the basis of a legal system that is supported by laws that are enforced with the threat of violence. These laws are never neutral: they reflect the dominant power and class relations in society. Just as anti-union laws were needed to enforce neoliberalism, a crackdown on civil liberties is needed to support this new, more authoritarian variant of capitalism.
The UK is not alone in experiencing these changes – similar forces are underway across the world. For progressives who have spent the past decade complaining about austerity and free market orthodoxy, the challenge is enormous. Not only is it necessary to adapt to a world of crony state activism, but it is urgent to defend democracy and civil liberties against a new creeping authoritarianism. Progressives can either adapt to this new norm or we will be shaped by it.