Miliband has reaffirmed the original neoliberal ideal

The early neoliberals recognised the need for a strong state to challenge private monopolies.

Last year, Ed Miliband proclaimed the neoliberal era of the last thirty years to be over when he argued that “responsible capitalism” should be instituted to promote producers and prevent economic predators. This year, the Labour leader’s challenge was to communicate how this path could be developed in a language that people can understand. His chosen idea was Disraeli’s “One Nation”, but the vision for the economy set out in Manchester drew upon a surprising source: the German Soziale Marktwirstschaft (the social market economy). In fact, in pronouncing the death of Anglo-American neoliberalism, the Labour leader has rediscovered the original European neoliberal idea.

In interwar Europe, a group of intellectuals from Freiburg, Vienna, Paris, London and Manchester reformulated liberalism. They advocated a strong state to prevent concentrations of economic power, “whether through cartels, trusts or giant enterprise”, in the words of Harvard Political Scientist Carl Friedrich. As Stephanie Flanders showed last week in her programme, Masters of Money, Friedrich Hayek was the leader of these early neoliberals. But instead of the Austrian business-cycle theory with which Hayek famously opposed Keynes, the group’s main aim was a new middle way between laissez-faire and economic planning. It was a vision that its adherents, including Hayek, saw as entirely compatible with a basic social security safety net.

In 1948, this early form of European neoliberalism entered power in Germany. Ludwig Erhard, a member of Hayek’s Mont Pelerin Society (founded in 1947) became finance minister under the Chancellorship of Konrad Adenauer. German neoliberalism was characterised by a firm commitment that the economic benefits of competition as guaranteed by the state were balanced with the solution of social problems. This included a robust welfare state, worker involvement in the management of companies (“codetermination”), and a strong trade union movement, which saw its role as protecting jobs.

As the German Social Democratic Party signed up to a neoliberal approach through the Godesburg Programme of 1959, free market ideas travelled across the Atlantic. In the United States, neoliberalism turned into an uncompromising creed of market fundamentalism. This movement, led by Milton Friedman and the Chicago School on the one hand, and by James Buchanan and the Virginia School on the other, inspired, among other things, monetarism, privatisation, and the introduction of market-style incentives into public services and administration under Thatcher and Reagan. This brand of neoliberalism most famously advocated the economic and financial deregulation that led ultimately to 2008. The original European neoliberal preoccupation with competition and the targeting of monopoly (as well as its concurrent pursuit of social justice) was almost entirely absent from the priorities of its transatlantic cousin.

Thus, in expressing his confidence that people are sick of the ‘greed is good’ culture brought about by the unconditional embrace of free markets since the 1980s, the Labour leader has given voice to a visceral popular anger at the excesses of finance capital. Although he has signalled the abandonment by Labour of many of the tropes of Anglo-American neoliberalism, Miliband has championed some important pillars of German neoliberalism as he attempts to flesh out the meaning of “responsible capitalism”.

In his speech in Manchester, Miliband said he would use procurement rules to encourage a more long-term culture among business by rewarding those who offer apprenticeships and vocational training with government contracts. In the past year, he has proposed worker representation and “codetermination” for British companies to tackle excessive executive pay and bonuses. On Sunday’s Andrew Marr Show, the Labour leader supported the German trade union model of protecting jobs. Most importantly, in pushing the gimmicky-sounding “predistribution”, a term coined by Yale Political Scientist Jacob Hacker, Miliband has embraced one of the most important insights of the German neoliberals: the crucial role of the state in designing the rules of the economy to achieve particular goals. As Miliband said on Tuesday, this means, for example, changing the rules and incentives in areas such as corporate takeovers or the promotion of a living wage.

Now, for the early neoliberals the aim of the state was the achievement and maintenance of competition. For Miliband and the Labour Party there is a fundamental difference, which adds an exciting twist to their new agenda. In place of competition, “responsible capitalism” substitutes the reduction of inequality, a fairer distribution of wealth and power and increased opportunity for all as its central aims. Moreover, the lesson of the German experience is that with a political will, there is a real alternative to the Anglo-American neoliberalism of Thatcher and Reagan.

Daniel Stedman Jones is a barrister practising in London. His book on the history of neoliberalism, Masters of the Universe, is published this month by Princeton University Press.

Ed Miliband sings at the conclusion of the annual Labour Party conference in Manchester. Photograph: Getty Images.

Daniel Stedman Jones is a barrister practising in London, and the author of Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics.

Photo: Getty
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.