No whitewash: Richard Nixon’s was an era of oil-price shocks, decline and dirty politics — yet it didn’t lead to the collapse of American democracy. Photo: Hulton Archive/Getty Images.
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Notes on a series of scandals: is British democracy in crisis?

Many of us feel we are living through a period of profound crisis. But perhaps democracy is more secure than at any time since the 1970s.

British democracy is going through its worst crisis of confidence in decades. The underlying cause is economic. The recovery since the crash of 2008 has been the slowest in modern times. For Labour, the fear is that the party will continue to carry the can for allowing the mess to happen in the first place; for the coalition partners, it is that they will get blamed for the woefully unequal and piecemeal recovery. In this climate of uncertainty and distress, fringe parties and maverick voices have a golden opportunity. It’s not only Nigel Farage who ends up being taken seriously – even Russell Brand gets his moment in the political sun.

However, the primary symptoms of the malaise of British democracy are institutional. Over the past five years the standing of many of the central institutions of British public life has been undermined by scandal. The banks have forfeited public trust as a result of the corruption and incompetence that was exposed during and after the fin­ancial crisis. The reputation of parliament was gravely damaged by the expenses scandal that came to light in 2009 and has been rumbling on through the courts and the media ever since. The press saw what remained of its reputation for probity shredded by the phone-hacking scandal and subsequent Leveson inquiry.

The police have been heavily implicated in the worst examples of press behaviour. This is not only in relation to phone-hacking but dates back to the Hillsborough disaster nearly 25 years ago – in which the evidence of widespread misconduct by the South Yorkshire force drew a fulsome apology from the Prime Minister in 2012. Now the London Met is grappling with the fallout from “Plebgate”, a saga that is all the more damaging for being so absurd (the saying “It’s not the crime, it’s the cover-up” was never more true than in this case). The BBC is still reeling from the scandal surrounding the activities of Jimmy Savile and the exposure of ludicrously generous payoffs to executives caught up in it. This summer we discovered that the British secret services have been routinely eavesdropping on the everyday activities of ordinary British citizens, aiding and abetting the far more extensive surveillance operations being undertaken by the Americans.

The armed forces have emerged relatively unscathed from this period of purgatory for public institutions, although even they have been tarnished by revelations about past brutalities in Northern Ireland and Iraq. Perhaps it is only the monarchy whose reputation has risen in recent years, which says something about the state of British democracy. Elected politicians tiptoe around these scandals, looking for some way to ally themselves with public anger. At the same time, they are deeply wary of fuelling a backlash of disgust against the entire political establishment that would sweep them up as well.

What these institutional failings have in common is that they arose from a growing sense of impunity among small networks of elites. As British society has become more unequal it has created pockets of privilege whose inhabitants are tempted to think that the normal rules don’t apply to them. In any democracy, people with power will abuse it. All public institutions follow the path of least resistance over time. The usual democratic remedy is for other public institutions to rein them in: it is the job of the press and the police to keep an eye on the politicians, just as it is the job of the politicians to keep an eye on the press and police. In Britain, it looks like the opposite was happening. A managerial political class, with extensive links to other elites in the media and business, colluded in the sort of lax scrutiny that served their joint interests. Much of this behaviour coincided with a period of unparalleled political stability and economic prosperity: the long boom that lasted from the early 1990s until 2007. But when boom turned to bust, the cosy world of the elites became a joint liability.

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The public’s tolerance for managerial politics depends on the ability of the managers to keep delivering. Once that stops, they are exposed. You have to go back to the mid-1970s to find a comparable period of economic failure allied with institutional mistrust. Then, this toxic combination resulted in a similar anxiety among the political class about how they were going to find a way out. The Nixon shock of 1971 – which saw the unravelling of the Bretton Woods system of exchange controls – coupled with the oil shock of 1973 – which saw the price of crude oil quadruple in a matter of months following the Opec embargo – produced inflation, recession and rising unemployment across the western world. In Britain, industrial unrest broke first the will of the Heath government to resist inflationary pay rises and then its ability to sustain itself in office at all. The early 1970s brought an explosion of sectarian violence in Northern Ireland, followed by a heavy-handed and brutal clampdown by the British army. By 1974 the violence had spread to the mainland. Parts of Britain appeared practically ungovernable. There were dark mutterings about the incapacity of the democratic British state to meet the challenges that it faced.

On 3 March 1974, the leading New York Times journalist James Reston published a widely syndicated column that he headlined “The crisis of democracy”. His dateline was London. Reston had arrived to cover the outcome of the general election that had been called a month earlier in order to discover, as Prime Minister Edward Heath fatefully framed it, “who governs Britain”. The inconclusive result – a hung parliament, with Heath failing to get the backing he had asked for but Labour also short of a majority – prompted Reston to despair of western democracy more generally.

Heath and his rival Harold Wilson were typical of an age of “political technicians” who had forfeited the confidence of their electorates by their inability to muster a grand vision of politics. In place of idealism, they offered piecemeal fixes. The problem, however, was that although they were just technicians, they were also deeply partisan. “Mr Heath and Mr Wilson stick with the paradox that the country is in grave danger, but not so grave as to require their combining to save it,” Reston observed. “So they will muddle along separately, begging for votes from the minor parties . . .”

This, he felt, spelled disaster in the long run. “The political ‘decline of the west’,” he concluded, “is no longer a subject for theoretical debate but an ominous reality . . .”

Many of these complaints are echoed today. Politics is petty and visionless. The deep causes of public disquiet are not being addressed, let alone remedied. The inconclusive muddle of British politics, exacerbated by a plague-on-all-your-houses result at the last general election in 2010, with perhaps worse to come next time, is happening against the backdrop of a global shift in power from west to east. The public has come to believe the politicians are in it only for themselves.

Yet it is important to recognise the many significant differences between the crisis of democracy of the 1970s and the crisis now. The first is that there existed a surprisingly widespread belief during the mid-1970s that, were the muddle to continue, it might need to be ended by force, with a military takeover. A coup was not outside the realms of political possibility (and we now know that rogue forces within the secret services made cack-handed attempts to organise one, with either the Duke of Edinburgh or Lord Mountbatten as the preferred strongman to replace Wilson).

The particular focus of these fears was rising inflation. It was a common assumption at the time that no democracy could survive a sustained bout of inflation above 30 per cent – and in Britain the rate hit 25 per cent in 1975. It was commonplace to invoke the baleful example of Latin America, where the global economic crisis of the mid-1970s led to the collapse of a number of democratic regimes. The economist Milton Friedman suggested in 1974 that the failure to control inflation had been responsible both for Heath’s replacement by Wilson in Britain and for Allende’s replacement by Pinochet in Chile. It cost one man his job; the other his life. The barely veiled sense of threat was apparent.

Today the talk of democracy-destroying inflation has more or less disappeared. Yes, we face a mix of rising prices and stagnant or falling wages – the “cost-of-living crisis”, as the Labour Party likes to call it – that has some echoes of 1970s stagflation. But the scale is very different. Ours is a slow-burning, incremental squeeze on living standards, not the threat of an inflationary rip tide sweeping away savings and security. In large part because of the fears generated in the 1970s, we now have economic technicians in charge of an independent central bank whose job is to ensure that inflation remains more or less under control. Likewise, the idea that the current crisis might result in a military coup seems laughably remote. We worry – or at least some of us do – that the military-security complex is squeezing what is left of our privacy by spying on our communications. We don’t, however, worry that the security services are secretly plotting to instal a member of the royal family as an unelected head of the government.

Connected to this is a more profound difference: in the 1970s there were in the air plenty of seemingly viable alternatives to western liberal democracy, and not just on the militarist right. On the left also the idea of revolutionary change was much more than simply a slogan: for its champions, it was a realistic possibility. The 1970s were a deeply ideological decade, during which alternatives to the prevailing democratic system were frequently aired and often taken seriously. Ours, by contrast, is a post-ideological age. When Russell Brand calls for the revolution he proclaims inevitable, it is not clear what kind of politics he has in mind. His only concrete notion is that greater political disengagement will precipitate the change. Political disengagement does not produce revolution. It just provides more space for the political technicians to operate.

 


Russell Brand at the New Statesman offices. His call for a “revolution of consciousness” is not backed by any clear sense of a political programme

 

Of course, there are still some viable alternatives to western liberal democracy. Chinese state capitalism is making headway in many parts of the world, including Africa. Democratic populism, of the kind practised by Hugo Chávez, has plenty of adherents in Latin America. But these alternatives are rarely, if ever, treated as even hypothetically viable futures for a country such as Britain. I chaired an event recently in Cambridge at which Seumas Milne of the Guardian, perhaps the most conventionally left-wing journalist currently writing for a mainstream publication (during the 1970s mainstream writers who shared Milne’s views were legion), described the current failings of liberal democracy: botched wars, rapacious banks and energy companies, deep-seated inequality, under-resourced public services. His largely middle-class audience was with him every step of the way. But when someone asked what the alternative was, and he said we should run our economy more like the Chinese run theirs, there was an uncomfortable silence. Suddenly he was on his own. Discontented Britons who as a corollary embrace the idea of Chinese-style state capitalism are vanishingly rare.

Britain today is a very different country from what it was in the 1970s. It is more comfortable and much more tolerant of different personal lifestyles, even as it is less tolerant of extreme political views. Above all, it is vastly more prosperous. It is true that the effects of the present economic crisis are far-reaching and serious: many people who considered themselves comfortably off have found that it is increasingly hard to sustain their standard of living. The squeeze on living costs is being felt by a large proportion of the population. At the same time, the disproportionate rewards being enjoyed by those at the very top are both more visible and more pronounced than ever. This is a much more unequal society than it was 40 years ago. Nonetheless, all this is happening from what is by any historic standards a very high base of material security (excepting the pockets of true deprivation that prosperous societies such as ours still allow to grow up in their midst).

There is extensive historical evidence that once they pass beyond a certain level of material prosperity democratic societies are very unlikely to experiment with alternative forms of government. The costs of the disruption are not worth any possible reward. The cut-off point is usually put at around $7,000 per capita GDP. During the dark days of the 1970s, even as it contracted, the British economy remained well above that level – but not so far as to be out of sight (per capita GDP was roughly $15,000 at the start of the 1970s). By 2008, per capita GDP in Britain was close to $40,000 and although it has fallen since, it has not fallen far (and not below $37,000). If we couldn’t face the economic and social disruption of drastic political change in the 1970s, we are hardly likely to be keener on it now.

By contrast, there is almost no historical evidence to tell us what happens when an exceptionally prosperous democratic society like ours suffers from widespread institutional failure and enters a period of decline. The level of prosperity that Britain has achieved is far too recent a phenomenon for there to be useful historical examples to draw on. Perhaps the only real point of comparison is with contemporary Japan. Since the early 1990s the Japanese economy has largely stagnated and its political institutions have struggled to adjust to the challenges they have faced. Japan entered a period of crisis two decades ago in which it seemed to get permanently stuck.

At the start of the “lost decades” in Japan there were frequent warnings of impending disaster – could a democracy survive if it stopped delivering significant economic growth? It turns out that Japanese democracy could survive. Things in Japan never got so bad as to shake the system out of its torpor, but that means they also never got bad enough to bring the system to its knees. At no point has there been the prospect of a military coup. The political technicians simply muddled through as best they could, patching things together and hoping for better days. Over the past year there have been signs that better days are finally returning for the economy, although, as many Japanese are aware, they have been here before. One feature of drawn-out crises in which nothing gets sufficiently broken for anything to get finally fixed is that they are full of false dawns. In Britain we might right now be experiencing the first of many.

Britain is not Japan. British civil institutions are both more flexible and less socially cohesive than their Japanese equivalents. We are able to adapt to our failings more quickly – and we may need to, because we do not have the protection of extensive family and corporate support systems to paper over the cracks. But in one respect, Britain does resemble Japan. Japanese public life, though relatively rigid in insti­tutional terms, has long been rife with scandal. It is the form in which political outrage gets expressed: business, media and political figures are all often brought down by the exposure of their personal failings. Similarly, one of the distinctive features of the present crisis of British democracy is the extent to which it has been dominated by scandal. It has been the exposure of individual misdeeds that has generated most of the outrage. Fred the Shred, Jimmy Savile, Rebekah Brooks, Sir Peter Viggers of duck-house infamy: these are the targets of public dismay and disgust. One reason why the present scandal over GCHQ surveillance is yet to have a similar impact is that in the faceless world of high-level espionage it is by definition much harder to find an individual to blame. Even the phone-hacking scandal only really took off when the public was able to put a face to the injustice: Milly Dowler and her family.

Scandals are not the same as full-blown political crises, although it is often tempting to confuse the two. Crises can sometimes transform politics. Scandals rarely do. One reason why we often inflate the significance of democratic scandals is that all of them exist in the shadow of the greatest scandal of them all, which did result in a full-blown crisis and widespread political change. The Dreyfus affair, which split fin de siècle French society and reconfigured the power of the French state, is the scandal against which all others are measured. Every now and then the exposure of misdeeds in high places does indeed overturn the established order. But Dreyfus is the exception, not the rule. Most democratic scandals have very limited effects. They create a huge amount of fuss for a short period of time. Usually they offer moments of catharsis: a resignation, a trial, a conviction. What they do not produce is structural change.

Here a comparison with the 1970s is instructive. It was not an age of great political scandals in Britain, though we had our usual share of embarrassments and fall guys, from Lord Lambton to Jeremy Thorpe. The true sense of crisis that gripped the western democracies coincided with the most significant democratic scandal since Dreyfus: Watergate. The ripple effects from Watergate contributed to a growing feeling in the middle of the decade that western democracy was rudderless, its most important player turned in on itself in a never-ending bout of recrimination and political bloodletting. Europe’s democratic politicians often complained during the 1970s about the excessive power of the United States. But they also complained when that power went missing. Recent criticisms of the US, fuelled by the hair-raising spectacle of a government shutdown taking the country to the brink of a catastrophic default, follow a similar pattern. We don’t like American democracy to overshadow ours, but nor do we like it when America’s politicians neglect the rest of the world to pursue their endless infighting. We don’t want America’s politicians telling us what to do, but nor do we want them turning their backs on us.

As it was unfolding, Watergate looked like it might be a watershed, and Nixon’s resignation was widely regarded as the moment for American democracy to renew itself. Yet in retrospect its significance seems very different. Like most scandals, Watergate constituted a diversion rather than a decisive break with the past. American democracy absorbed the shock and moved on. The properly significant change occurred later in the decade, during the Carter administration, when a structural shift took place from the remnants of the New Deal economy to the finance capitalism that ultimately let rip in the Reagan years. At the end of the 1970s, Wall Street took over from main street as the dominant force in US political life, a position it has occupied ever since. Watergate provided some of the cover for this to happen. It generated first outrage and then a widespread feeling of disillusionment, once it became clear how little of substance had changed. Distraction followed by disillusionment are often the circumstances in which democratic politicians feel emboldened to try something new.

In 1975 another widely read publication appeared under the title The Crisis of Democracy. This was the report of the Trilateral Commission, which had been asked to look into the possibility that western democracy was at the end of the road. One of its co-authors, the American political scientist Samuel Huntington (later better known as the author of The Clash of Civilisations), shared the general feeling that western democracy was in deep trouble, weighed down by inflationary pressures, international discord and intellectual grandstanding. However, he pointed to a way out of the mess. It would not require the voters to ramp up their demands on the politicians: Huntington thought that this was what had caused the trouble in the first place. Instead, rescue would come when the public became so tired of the disappointments of democratic politics that they more or less lost interest in it altogether. At that point, the politicians might finally have the room to attempt reform. Huntington’s prognosis, cynical and disillusioned as it was, turned out to be prescient. What provides the space for change is not public anger; it is growing public indifference.

The current spate of British scandals looks different because there are so many of them: it is not just one institution but the whole edifice of public life that appears to be fraying. Scandal on this scale might provide the impetus for wholesale reform – yet I rather doubt it. More likely is that it multiplies the distraction. If anything, we are suffering from scandal overload: as each institutional exposure is followed by another, as yet more scapegoats are found and as politicians reposition themselves to withstand a fresh bout of public anger, it is harder than ever to find a focus for deep-rooted change.

Scandals in democracies allow the public to vent anger without undermining the basis of democracy – we fixate on the misdeeds of a few people at the top, which helps to preserve the underlying structures intact. This represents one of the basic differences between democracy and the alternatives. Under autocratic regimes, an outburst of public rage can be fatal because the system lacks the means to accommodate it. That is why autocrats are so scared of scandals (witness the efforts by the Chinese state to limit the effects of the Bo Xilai affair). The distraction of Watergate helped American democracy to survive the 1970s: it allowed citizens to let off steam without resulting in an implosion of the entire system of government. It was the regimes that couldn’t accommodate popular anger, including the communist states of eastern Europe, that eventually fell apart.

A multiplication of scandals gives the appearance of the build-up of a huge head of steam for change. But in fact it means the steam gets let off in lots of different places at once, which makes it even harder to channel public anger in any one direction in particular. The response is far more likely to be fragmentary than coherent: endless firefighting rather than a concerted effort to build a better system of government. At the same time, we are still a long way from the state of public indifference that might give the politicians room to undertake bolder experiments. The risk is that a fragmentation of public attention coincides with a deepening sense of resentment at the ineffectual attempts by politicians to make a tangible difference. For now even the moments of catharsis are proving elusive.

The digital revolution exacerbates this risk. The multiplication of scandals is in part the result of the emergence of information that has long been suppressed. In the absence of secrets, public anger never completely goes away: there is always something new to rail against. Democracy in Britain is more secure than it was in the 1970s because of the absence of ideological alternatives and because of the material comfort in its foundations. But it faces a challenge that did not exist four decades ago. Constant scrutiny of a surfeit of information fragments more than just attention spans. At the end of the 1970s the two main parties together commanded the votes of over 80 per cent of voters on a turnout of over three-quarters of the electorate. Now Labour and the Tories share the support of barely two-thirds of those who vote on turnouts of less than two-thirds of the total electorate – and both figures are likely to keep falling.

The risk for British democracy is not of permanent crisis. It is of a permanent state of scandal obscuring the underlying crisis of elitist managerial politics and thereby making it harder to fix. It is increasingly difficult to envisage the circumstances in which politicians get the space to try something new.

The advantage of democratic systems of government is that they adjust when they have to, trying something new until they find something that sticks. They are broadly experimental and adaptable. British democracy is much more secure than it was in the 1970s, yet it is also much more fragmented. Together, these two factors leave its adaptability in question. With these factors in play, it may be that the crisis has to get a lot worse before the conditions arise in which significant change is possible. But the crisis is real and bad enough already, and wishing for worse in order to galvanise the prospects for institutional change is playing with fire. Although the leaders of both main political parties like to compare themselves with Margaret Thatcher in her role as steely-willed game-changer, no one wants to go back to the high-stakes politics of the 1970s. British democracy recovered from the travails of that decade. The present state of British democracy is a reflection of how far removed we are now from those looming fears of imminent collapse. This time the danger is different. We face the risk of getting stuck where we are.

David Runciman is a professor of politics and fellow of Trinity College, Cambridge. His latest book, “The Confidence Trap: a History of Democracy in Crisis from World War I to the Present”, is published by Princeton University Press (£19.95)

This is an edited version of an essay that appears in the winter edition of the IPPR journal Juncture

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.

 

 

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