Show Hide image

The New Depression

The business and political elite are flying blind. This is the mother of all economic crises. It has

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality. So it was with Northern Rock. So it was with the attempt to recapitalise the banks. And so it will be with the latest gamut of measures. The British government – like every other government – is perpetually on the back foot, constantly running to catch up. There are two reasons. First, the underlying scale of the crisis is so great and so unfamiliar – and, furthermore, often concealed within the balance sheets of the banks and other financial institutions. Second, the crisis has undermined all the ideological assumptions that have underpinned government policy and political discourse over the past 30 years. As a result, the political and business elite are flying blind. This is the mother of all postwar crises, which has barely started and remains out of control. Its end – the timing and the complexion – is unknown.

Crises that change the course of history and transform political assumptions are rare events. The last came in the second half of the 1970s, triggered by the Opec oil price spike and a dramatic rise in inflation, which marked the end of the long postwar boom. Its political consequences were far-reaching: the closure of the social democratic era, the rise of neoliberalism, the discrediting of the state, the embrace of the market, the undermining of the public ethos and the espousal of rampant individualism. For the next 30 years, neoliberalism - the belief in the market rather then the state, the individual rather than the social - exercised a hegemonic influence over British politics, with the creation of New Labour signalling an abject surrender to the new orthodoxy.

The modalities of this present crisis are entirely different. Extreme as they may have appeared to be at the time, the economic travails of the 1970s were progressive rather than cataclysmic. The old system did not hit the wall, but became increasingly mired and ineffectual. What swept the social democratic era away was not the force de frappe of an irresistible crisis but that it was accompanied by the steady rise of a new ideology and political force in Thatcherism - and Reaganism in the United States - and its victory in the 1979 general election.

In contrast, the financial meltdown of 2007-2008 demolished the neoliberal era and its assumptions with a suddenness and irresistibility that was breathtaking. The political class, from New Labour to the Conservatives, is standing naked. They are still clinging to the wreckage of their old ideas while acknowledging in the next breath that these no longer work. The financial crisis is a matter of force majeure; political ideas and discourse change much more slowly, even when it is obvious that the old ways of thinking have become obsolete. Meanwhile, there is no political alternative waiting in the wings, refining its radical ideas in think tanks ready to storm the citadels of power as there was in the 1970s, notwithstanding the fact that think tanks are now far thicker on the ground. Instead, it has been the mainstream which senses that neoliberalism no longer works, fatally undermined by events and, ultimately, the author of its own downfall. This crisis will have the most profound and far-reaching political consequences and will in due course transform the political landscape, but it remains entirely unclear in what ways and when that might be.

In all these senses the financial meltdown has far more in common with the Great Depression than the Great Inflation. When the financial crisis consumed Wall Street in 1929 and proceeded to undermine the real economy, engulfing Europe in the process, it was not accompanied by a radical shift towards Keynesianism, but rather a reassertion of sound finance orthodoxy, followed in due course by the adoption of protectionism. The political mainstream as represented by Labour's Ramsay MacDonald and Philip Snowden and the Conservative Stanley Baldwin all sang from the same hymn sheet. Only Keynes and a faction of the Liberal Party enunciated a plausible alternative. Eventually a programme of fiscal deficits and public works was pursued by Franklin D Roosevelt in the United States, but in Britain Keynesianism was not properly embraced until rearmament and the approach of war. Indeed, it was not until 1945 that the combined legacy of war and the Depression belatedly resulted in a fundamental political realignment and the birth of the social democratic era.

The Grim Reaper has finally spoken:

a boom pumped up by credit steroids and a bust that takes us back to the 1930s

Since the financial meltdown dramatically intensified in September 2008, Gordon Brown has managed to ride the economic storm rather more successfully than the Conservatives, or, for that matter, than Tony Blair would have done. It is Vincent Cable, the Liberal Democrats' econo­mics spokesman, however, who has indubitably emerged as the political sage, unafraid of confronting neoliberalism's shibboleths, demonstrating a clarity of mind and the political courage to tell things as they are, in a way that has escaped all other prominent politicians. Although Brown was the economic architect of the past decade and was responsible, more than anyone else, for its excesses and was shaping up to be a rather disastrous Prime Minister, he displayed last autumn, at least initially, an agility of mind and nimbleness of foot that defied the expectations of those who believed he was capable of neither. He revelled in the sense of purpose and vision offered by the crisis, seemingly prepared to jettison the thinking that had imbued his previous decade as chancellor.

But Package Part I, widely hailed at the time and imitated elsewhere, proved woefully inadequate, and the financial system remains frozen. Meanwhile the waters are rising up the Good Ship UK, threatening to transform the banking crisis into a fiscal and currency crisis. It seems unlikely that, if that should happen, Brown will survive the next election.

Even if it does not happen, Brown faces a serious problem about his own past role, because Britain’s crisis has been greatly exacerbated by the soft-touch regulation, easy credit, runaway house inflation and overexpansion of financial services over which he presided and for which he is accountable. So far he has refused to admit or accept responsibility for his actions – he initially had the temerity (or foolhardiness) to argue that the UK was better placed than other countries to deal with the credit crunch, even though it has become abundantly clear since that the very opposite was the case. So while Brown remains in denial, the plausibility of his new turn, and his understanding of what is entailed, must be seriously doubted.

Indeed, after its initial boldness, the government now seems trapped by its past actions and its former ways of thinking. Brown's failure to accept the need to nationalise the banks suggests the limits of his new-found political courage, and his inability to embrace the logic and imperatives of the new situation. He is still a prisoner of his old timidity and his conversion to the neoliberal cause. It is his good fortune that the Cameron Conservatives have been hugely wanting in their response to the financial meltdown. Having spent his first years as leader of the opposition seeking to reassure the country of his centrist credentials, David Cameron, at the first whiff of gunfire, has turned on his heels, rejected Keynesianism and, at the very moment when events have shown Thatcherism to be deeply flawed and historically out of time, headed back to the Thatcherite womb of sound finance, arguing that a government must balance its books and that deficit financing, Keynesian-style, is reckless and irresponsible.

But all this, it must be said, is the small change of politics. The crisis threatens in time to sweep away the political world as we know it and those who fail to grasp its magnitude and meaning. Far more is at stake than the fortunes of a few leaders, be their name Brown or Cameron. Who knows where things will be this time next month, let alone next year or, indeed, in 2012? The financial meltdown now rapidly plunging the western world into what increasingly looks like a depression is the first great crisis of globalisation. There was plenty of warning. The Asian financial crisis of 1997-98 proved a salutary lesson about the dangers posed by huge capital movements that were subject to precious little regulatory control. Three economies capsized (South Korea, Thailand and Indonesia) and others stood on the brink.

There were other earlier warning signs, notably Mexico in 1995, when GDP fell by 9 per cent and industrial production by 15 per cent, following a run on the peso. These crises were blamed on the immaturity and fecklessness of national governments - in the case of east Asia on so-called crony capitalism (which, incidentally, prompts the question of how we should describe Anglo-American capitalism) - which the International Monetary Fund obliged to engage in swingeing cuts in public expenditure as a condition of their bailouts.

Yet what if such a crisis were to be no longer confined to the peripheries of global capitalism but instead struck at its heartlands? Now we know the answer. The crisis has enveloped the whole world like an uncontrollable virus, spreading from the US and within a handful of months assuming global proportions, at the same time mutating with frightening speed from a financial crisis into a fully fledged economic crisis. In so doing, it has undermined the foundations on which the present era of globalisation has been built, namely scant regulation, the free movement of capital, a bloated financial sector and immense reward for greed, thereby bringing into question the survival of globalisation as we now know it.

Enormous international flows of unregulated capital have capsized the international financial system - with disastrous consequences for the real economy - in a manner akin to the effect of a roll-on, roll-off ferry shipping too much water. We can now see the cost of free-market capitalism and light-touch regulation. Iceland may provide an extreme example of the consequences of the credit crunch but it also illustrates the dangers facing the more vulnerable economies, the UK included, in a deregulated world where the market rules: a small, open economy; a large, internationally exposed banking sector; an independent currency that is not a serious global reserve currency (of which there are only three); and limited fiscal strength. These propositions have constituted the core economic beliefs - from Thatcher and Lawson to Blair and Brown - that have informed policymaking over the past three decades and without which, it was claimed ad nauseam, an economy could not succeed. Heavy-handed regulation and an overbearing state would serve only to frighten off capital and condemn a country to slow growth, stagnation and global marginality. Now we know the fallaciousness of these claims and the consequences of "letting the market decide".

Like Iceland, albeit not as extremely, Britain has been living in a fool's paradise. A failure to regulate the banks and other financial institutions in any meaningful fashion allowed bankers to behave in a grossly irresponsible and avaricious fashion; a boom that was made possible only by a government-enabled credit binge in which people borrowed recklessly; a bloated financial sector that grew to represent over 8 per cent of the total economy and which was found to have been built on foundations of sand; an overvalued currency that made manufacturing exports uncompetitive and thereby resulted in an unnecessary and counterproductive contraction in the manufacturing sector which must now be reversed; an absurd belief that boom and bust had been banished for ever, allowing the banks to turn a blind eye to the inflating of various asset bubbles and display a profound ignorance of the history of capitalism; a persistently chronic current account deficit that can no longer be compensated for by inward capital flows; monstrous salaries for those at the top of the financial and corporate tree, which were justified in terms of a trickle-down effect that remained a chimera, and as the reward for risk which was, in fact, a reward for greed and failure; growing inequality, which was justified in the name of a more competitive economy accompanied by declining social mobility in the cause of an open and flexible labour market; and, finally, the mushrooming of what can only be described as systemic corruption on a mega-scale as the state ignored the gargantuan abuses of those who ran the banks and other financial institutions, while regulatory authorities willingly colluded in their excesses.

This is the sad story of the New Labour era.

The ultimate cost of this debacle as yet remains unknown. What began as a financial crisis is threatening, as the government seeks to bail out a bankrupt financial sector, to become a currency crisis, with foreign investors concerned about the effects this might have on the value of sterling, and perhaps even worse, ultimately a sovereign debt crisis, with growing doubts about the UK’s financial viability. Until there is some end in sight to the financial crisis, and a line can be drawn under the banks’ indebtedness, we will not know the answer to these questions. One thing is clear, however: whatever the limitations of the social democratic era, it was never responsible for such an all-enveloping and cataclysmic crisis as the one that the neoliberal era – and the Thatcherites and New Labour – have managed to produce. After all the boasting about the virtues of the Anglo-American model of capitalism, the Grim Reaper has finally spoken: a boom pumped up by credit steroids and a bust that takes us back to the 1930s.

There are two key aspects to this crisis: national and global, with the latter promising to be rather solutions are concerned, we are in uncharted territory, with close to zero interest rates, a Keynesian-style fiscal boost that may prove inadequate to the task and could well fail, a hugely indebted financial sector that threatens to leave us with an enormous future tax burden and a greatly expanded national debt. All of this, furthermore, must be addressed in the context of an open-market regime which is very different from those of previous eras, and which could render Keynesian-style national solutions ineffectual. What would greatly assist any national recovery is a co-ordinated global response to the crisis; in other words, global co-operation at the highest level. This cannot be ruled out, but it would be a brave person that would bet on it. It was exactly the lack of international co-operation that bedevilled recovery in the 1930s and eventually led to the Balkanisation of the world into regional currency and trading blocs.

The most important single question in this context is the relationship between the US and China. Will the Obama administration be able to resist the slippery slope of creeping protectionism? Will arguments over the revaluation of the Chinese renminbi be resolved amicably? If the answer is in the negative, then the global outlook will be very bleak indeed and so, also, as a result, will be the prognosis for national recoveries. Indeed, the prospects would look disturbingly like those of the 1930s, with growing international antagonism and friction and a continuingly intractable crisis at a national level, with only the very slowest of recoveries.

Around the world there is growing evidence by the week of a resort to national solutions at the expense of others: measures to subsidise industries that are in severe difficulties; the Buy American clause that was inserted by the House of Representatives into Barack Obama's latest package (though since weakened); the industrial action in Britain against foreign workers; the withdrawal of banks to their national homes; the attack by Timothy Geithner, the US treasury secretary, on China as a currency manipulator. No Rubicon has been crossed but the warning signs are clear. A retreat into protectionism and beggar-thy-neighbour policies will deliver the world into a second Great Depression.

So what will be the political effects of the financial meltdown? Some are already evident. Just as the Great Inflation of the 1970s played to the tunes and concerns of the right, with its invocation of the market, the New Depression suggests the opposite, the inherent limitations of the market and the indispensability of the state. Indeed, the speed with which the neoliberal refrains and invocations have unravelled has been breathtaking. The single most discredited aspect of the social democratic legacy was nationalisation, and yet the government, with the most extreme reluctance, has been obliged to nationalise Northern Rock and partially nationalise the Royal Bank of Scotland and the merged Lloyds TSB and HBOS. Who would have ever imagined, at any point during the past 30 years, that no less than the financial commanding heights of neoliberalism would have ended up in the hands of the state, with precious little opposition from anyone except a few disgruntled shareholders? Even now, however, the Labour government, still trapped in the ideological straitjacket of New Labour and displaying extreme timidity in the face of powerful vested interests, which has always been a New Labour characteristic, is running scared of the inevitable logic of the situation, namely that all the high-street banks should be taken into public hands until the mess is sorted out. Anything else leaves the public responsible for all the debts and risks, while the banks continue to be answerable to the very different interests of their shareholders. But such is the fury and depth of the crisis that this scenario is highly likely.

The state is experiencing an extraordinary revival. The credit crunch is the most catastrophic example of market failure since 1945. It became almost immediately obvious to wide sections of society that there was only one institution that could potentially sort out the mess: the state. Far from being a rational distributor of resources, the market had proved the opposite. Far from bankers and financial traders embodying the public interest, they have been exposed as irresponsible and dangerous risk-takers whose primary motivation was voracious greed. If trade unionists and the nationalised industries were the demons of the 1970s, bankers and the financial sector have assumed the mantle of public enemy number one in the late Noughties. In fact, the irresponsibility of bankers, and the damage they have inflicted on the economy, hugely exceeds anything that the unions could possibly be held responsible for in an earlier era. Meanwhile, the fallen heroes of the pre-Thatcher era, most notably Keynes, are duly being exhumed, restored to their rightful position, and pored over for their ability to throw light on the present impasse and what might be done; if the recession turns into a depression, Marx will once again become required reading.

This political shift is not just a British phenomenon, but a more general western one. The most striking feature of President Obama's inaugural speech was the way in which it embraced and legitimised African Americans for the first time in American history. But it also had another powerful theme, namely its invocation of the public interest and public service. After decades during which American political discourse has been dominated by the language of individualism and the market, it came as a shock to hear a US president articulate a very different kind of philosophy, renouncing private greed in favour of the public good. Obama's election can in part be seen as a response to the failure of the neoliberal era, as well as of Bush's neoconservative agenda; certainly his election represents a remarkable shift to the left in US politics, in contrast not just to Bush, but every recent US president, including Reagan, Bush Sr and Clinton. That Obama is the first African-American president also represents a remarkable redrawing of the political landscape. There is no more powerful - nor difficult - way of redefining society or to embrace a new form of representivity than to include a racial minority that has been excluded.

This brings us finally to what might be the longer-term global consequences of the crisis. Again, we are inevitably stumbling around in the dark because so much depends on whether the recession metamorphoses into a fully fledged depression and in what way and shape the world eventually emerges from the debacle. That said, two key points can be made. First, the credit crunch signals the demise of the Anglo-American, neoliberal model of capitalism, which has exercised a hegemonic influence over western capitalism and been the blueprint for globalisation since 1980. Because of its catastrophic failure there seems very little chance of its resurrection. The process of recovery - whenever that might be - will be accompanied by an overriding concern to ensure that the events of 2007-2009 are not repeated in the future, just as happened in the US in the 1930s with the strict regulatory framework that was introduced for the banks after their comprehensive failure in 1929. This will include the search for a new global regulatory framework that controls and constrains international movements of capital, as well as strict controls over the financial sector at a national level. A new set of political priorities - and with it a new political language - will be born.

Meanwhile, the influence and prestige that the US, and to a far lesser extent Britain, have enjoyed will vaporise in the same manner as their neoliberal model. Their 30-year project has failed and they will be obliged to pay the price in their reputation and the esteem in which they are held. The countries of the former Soviet Union and the casualties of the Asian financial crisis that were forced to swallow the neoliberal medicine will have good reason to feel aggrieved and resentful. The west has been forthright in accusing the non-western world of corruption. The financial meltdown suggests that the west has been guilty of huge hypocrisy. Systemic corruption has lain at the heart of the western financial system. An entirely disproportionate and extortionate level of bonuses has ensured the enormous enrichment of top executives in the financial sector, all in the name of reward for success, when in fact it was the reward for failure. In addition, we have had the collusion of the credit-ratings agencies; a regulatory system characterised by its failure to act as any kind of constraint; and governments that ensured the continuation of this web of relationships and applauded its achievements. The corruption was on a breathtaking scale as evidenced by the size of the bailouts required to rescue the banks. It will be difficult for western governments to make these kinds of accusations of others in the future. That Obama represents such a voice of hope will help to mitigate the inevitable ill-will towards the US, but this should not be exaggerated amid the euphoria surrounding developments in Washington.

The second point is more far-reaching. It is doubtful whether we can still describe ourselves as living in the American era or, indeed, the Age of the West. If not yet quite over, both are certainly drawing to a close, and it seems likely that the effect of the financial meltdown will be to accelerate the rise of China as a global power. The contrast between the situation in China and that in the US could hardly be greater, even though it has been partially obscured by the depressive effect of the western recession on Chinese exports and on China’s growth rate. While the US economy is contracting, China’s grew at roughly 9 per cent in 2008 and is projected to grow at about 6 per cent in 2009. Its banks, far from bankrupt like their US counterparts, are cash-rich. China enjoys a large current account surplus, the government’s finances are in good order and the national debt is small. This is a crisis that emanates from the US and whose impact on China has been essentially indirect, through the contraction of western markets. It is the American model that has failed, not the Chinese.

One of the factors that intensified the Great Depression, and indeed was part cause of it, was Britain's growing inability to continue in its role as the world's leading financial power, which culminated in the collapse of the gold standard in 1931. It was not until after the war, however, that the US became sufficiently dominant to replace Britain and act as the mainstay of a new financial system at the heart of which was the dollar. The same kind of problem is evident now: the US is no longer strong enough to act as the world's financial centre, but its obvious successor, namely China, is not yet ready to assume that mantle. This will undoubtedly make the search for a global solution to the present crisis more difficult and more protracted.

Martin Jacques's new column will be published fortnightly in the New Statesman. His book "When China Rules the World: the Rise of the Middle Kingdom and the End of the Western World" will be published in June (Allen Lane, £25)

the global downturn in numbers

    0.5%

    IMF prediction for global growth in 2009 - worst since WWII

    Up to 40 million

    Number of people who will lose their jobs this year, according to the International Labour Organisation

    $9.7trn

    Total pledged by the US alone towards solving the crisis

    3.6%

    Proportion of GDP pledged by the G7 and BRICs countries towards fixing the crisis (1.5% this year)

    2.3m

    Number of US properties that received a default notice or were repossessed in 2008. In the UK, 45,000 homes were repossessed - another 75,000 are expected to be taken in 2009

    14

    Number of major global banks which collapsed, were sold or were nationalised during 2008

    200,000

    Number of European companies expected to fail this year; an additional 62,000 are expected to fail in the United States. These figures represent record levels of insolvency

    52%

    Increase in UK company failures between late 2007 and late 2008

    14%

    Drop in level of Chinese exports during January

    1%

    Current UK interest rates (down from 5% in October 2008). In the US, rates have fallen to between 0 and 0.25%

How the crisis unfolded

13 September 2007 Run on Northern Rock begins when it is revealed that the bank has requested emergency support from the Bank of England

21 January 2008 FTSE suffers worst falls since 11 September 2001

February 2008 Northern Rock nationalised

17 March 2008 JP Morgan Chase takes over the US investment bank Bear Stearns

12 July Mortgage lender IndyMac collapses - second biggest US bank in history to fail

9 August 2007 European Central Bank pumps ?95bn into banking market

7 September Financial authorities step in to rescue Fannie Mae and Freddie Mac

9 September Bradford & Bingley becomes second British bank to be nationalised

15 September Lehman Brothers files for bankruptcy

16 September AIG, biggest insurance firm in the US, receives $85bn rescue package

3 October 2008 US government announces $700bn Troubled Assets Relief Programme

8 October UK launches its first bank bailout plan, making £50bn available

October 2008 Iceland's banks collapse. IMF extends £1.4bn ($2.1bn) loan a month later

24 November Alistair Darling announces a temporary cut in VAT from 17.5 to 15 per cent

23 January 2009 UK enters recession

28 January US Congress passes Barack Obama's $819bn stimulus package

5 February UK Monetary Policy Committee votes to cut interest rates to 1 per cent - the lowest in over three centuries

Michael Harvey

Martin Jacques is the former editor of Marxism Today. 

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression

Photo: Getty
Show Hide image

Why Labour lost and how it can win: an essay on rebuilding a broad church

Labour is the only party that can give form and meaning to this new, old country – its politics must be parochial, national and international.

It was an extraordinary election. Labour in the ascendency. Expectations were confounded. A terrible, self-destructive Tory campaign gifted a victory to Labour. But we lost. We need a discussion about why and how we can win next time. When all is in flux and wild claims are flying about the best things to focus on are the fundamentals. These remain unchanged.

In June 2016 an alliance between the Tory shires and the ex-industrial working class took England and Wales, and so Britain, out of the EU. It was the same alliance that brought Churchill and Attlee together to defeat appeasement in 1941 and hold the country united against Hitler. This One Nation coalition contributed to the Atlantic Charter and so to the post war welfare state and a new liberal international order. That post war domestic settlement and its liberal international order is under great strain.

In the same year of 1941 George Orwell published his essay ‘England Your England’. It remains the best guide to the character of the country, saying "it will change out of all recognition and yet remain the same". The same is true of Labour's politics. The question remains the same. How does Labour reclaim its role as the party of the labour interest? And how does it set about its task of building a winning electoral coalition that will redress the power of capital for the common good?

Labour class and culture

In 2010 Labour suffered a devastating defeat after three terms in government. Intellectually limited and institutionally conservative, Labour failed to renew itself. In the June 2017 election campaign Jeremy Corbyn galvanised the party's coalition of public sector workers, BME voters, and the liberal middle class, and added traditionally non-voting students and young people. He transformed Labour’s standing in the country, and dramatically increased our vote share across the electorate.

It was a bravura performance, but Labour again fell well short of majority government. In 2010 it had held 258 seats on a vote share of 29 per cent. In 2017 it increased its seats to 262 seats and a vote share of 40 per cent. An increase of just four seats on a much larger vote share suggests that Labour has deepened its coalition but not broadened it out into areas where it needs to win support. The Conservative Party ran one of the most inept campaigns in its long history but still held 318 seats on an improved vote share of 42 per cent. It was a third defeat for Labour.

Despite the generational differences the fundamentals of British politics remain unchanged. In working class areas political support is moving towards the Conservatives and away from Labour. Majority support is for leaving the EU. The areas in which the professional middle class live are strongly Remain and shifting to Labour and away from the Conservatives. Labour is becoming the party of the better off and higher educated at the expense of its working class and lower-income vote. To check this trend and build a genuinely cross-class national coalition Labour has to tackle cultural inequality and the conflicts of ethnic and cultural difference. The politics of economic inequality will not be enough.

Labour’s coalition is coming apart as the economic and cultural identity interests of two sometimes antagonistic class cultures diverge. One is the metropolitan professional middle class, closely linked to the public sector and professions, and priding itself on its cosmopolitan liberal tolerance. The other is a culturally subordinate, ethnic-majority working class, disoriented by the loss of its industrial economic role, trapped in a low skill low wage economy, and determined to hold on to its national cultural inheritance in the face of the changing ethnic make up of the country. One reaps the benefits of globalisation, the other fears the redundancy of its way of life.

Caught between the two is a minority multi-ethnic population. Some groups are integrating and thriving. Others are struggling and segregated. A third group lives outside the mainstream.

To reclaim its role Labour must build a new labour interest out of these estranged class and ethnic cultures. In the last decade Labour has been moving away from being a ‘whole nation party’ toward a coalition of interests. Labour can only win if it wins in the towns and country as well as the big cities. It will only form a great reforming government if it restores itself as a one nation party with the labour interest at its heart.

The local and the global

Globalisation has created historically high levels of inequality, cultural disruption and demographic upheaval. Geographically and demographically Britain is structured around the places that are connected to the functioning global economy and the low skill, low wage and insecure peripheries which are not. The economy used to be integrated into society and the different classes used to have a share in this same economy, if not an equal one. But not now. In the geopolitics of inequality location matters.

The economic winners of globalisation are the asset-rich elites, and the metropolitan professional class of creative, media, knowledge and finance workers, as well as opinion formers. They are concentrated in London and the Thames corridor, and to lesser degrees in the large cities and university towns. The places they live are rapidly changing as commercial and residential property markets create zones of class and racial exclusion from which lower-income citizens are either driven out or restricted to social housing. Expanding service, retail and hospitality sectors for the elites employ low paid migrant labour rather than the old established working class, many of whom are now excluded from the productive forces of the new economy. In urban locations multiculturalism is a misnomer for profoundly unequal parallel lives. The recent fire in Grenfell Tower is a brutal reminder of this fact.

The professional managerial class escaped the first wave of globalisation and economic restructuring in the 1980s and 1990s, but their adult children have not. They face global competition from graduate talent as well as the rise of automation making professional roles redundant. Unlike their parents their graduate status no longer guarantees access to a traditional middle-class lifestyle and security in the status hierarchies of consumption. Young people have been excluded from the housing market and while higher education provides their principal source of esteem and reproducer of class cultural power, its function as gatekeeper into a disenchanted world has become a form of negative equity hanging over unpredictable future earnings.

As the journey from adolescence to indepedent adulthood is frustrated and delayed, a generation of young people are uncertain where they fit in. In the transient condition of their lives, the difficulty of making a home of their own and the intensity of competition for decent work, they have become the animating if not numerical force behind the "genuine and compassionate" leadership of Jeremy Corbyn. What they want however is quite conservative. It is simply the same opportunities their parents had.

The rising influence of this class has coincided with the decline of the industrial working class and its institutions of solidarity and its small c conservative values. The social stability won by the skilled working class during the industrial era has gone for many. Old industrial jobs have been exported to low wage economies or lost through new technologies. New jobs have been either low paid and low skilled or for the professional classes. Family life has changed with the collapse of mens wages and the necessity of the two-earner household. Marriage rates among the wealthy remain high but they have dramatically fallen in poor communities. Between 2007 – 2015 wages suffered a 10 per cent fall. The traditional working class has lost its economic function. Some have succeeded and found new opportunities, some of their children have made it to university, many find themselves struggling to get by on the peripheries of the global market economy.

The class cultural faultlines that divide the economic winners and losers are distinct. There is little social or cultural traffic between the two. Social mobility has fallen. Marriages, friendships and social occasions across this class cultural divide have become rarer. The middle classes behave like a cartel controlling access to the best state education via the housing market. Here, housing helps to reproduce class and ethnic segregation in schools. The prestigious universities and the national media, and our cultural and political institutions, are dominated by the professional managerial class and so reproduce the class hierarchies. These differences of inequality and exclusion have become more intense amongst younger generations.

Labour should be the national organisation capable of reaching across class cultural divisions. But while it can speak about economic inequality and the numerical problem of class representation in the parlaimentary Labour party, it has failed to address cultural inequality. The Labour Party has become part of the problem of class segregation. Its membership has been increasingly concentrated amongst the higher educated and in the globally connected cities and towns where the economic winners already live. As the party has become more socially liberal it has grown more culturally exclusive, and so has found itself estranged from the class it once represented.

The metropolitan professional managerial class is now the dominant influence in the Labour Party. It is a class fraction of the elites; economically secure but politically subordinate to capital. With its growth through Higher Education in the 1970s its members gravitated toward the Labour Party. They brought with them the liberationist ethic of the 1960s that valued individual self-expression and fulfilment. Identity politics around gender, sexuality, race and lifestyle replaced class. The national boundaries of traditional Labour internationalism were transcended with the adoption of a liberal cosmopolitan worldview.

Liberal cosmopolitanism

The significant development in cosmopolitan thought came in the work of the liberal philosopher John Rawls. Rawls had developed his abstract notion of justice and equality in the context of a singular, bounded society. In Political Liberalism (1993) he updated his theory of justice to take account of the way markets, immigration and the global flows of information and culture were breaking down the distinction between national societies. The virtue of justice needed to transcend borders. Human rights are universal and not relative to national political systems. Obligations to others should no longer be confined to fellow national citizens or simply to national institutions but should be an allegiance to humanity in general.

Rawls's approach to the virtues of justice and equality was transcendental. Their fulfilment requires an unobtainable state of universal perfection. The cosmopolitan model of liberalism rejects the pragmatic, situated and democratic negotiation of the common good and so it detaches political agency from the local. It becomes the preserve of a mobile elite. The academic Sheldon Pollock and colleagues link this universal and abstract worldview to a highly mobile western cosmopolitan elite culture. Despite its claim to being universal it is actually "tethered to a tenacious ethnocentric provincialism in matters of cultural judgment and recognition".

Craig Calhoun describes a cosmopolitan as someone who "cares about people to whom he or she does not have a strong personal connection and about the world as a whole". Cosmopolitans reject parochialism. But parochialism, says John Tomaney, is about the task of dwelling in the world and learning the social virtues that govern our everyday lives. Belonging is the commitment to this task. Membership of specific solidarities is the entry point into humanity. But to cosmopolitans the particular and the local impede justice and equality and limit the scope of human potential. As Calhoun argues the ethnicity and country we are born into are inherited identities and so anathema to cosmopolitan liberalism. But the ideology offers no account of what holds society together, nor the inheritance of culture as a source of meaningful life. It reduces society to a collection of cultureless, socially unattached individuals.

The metropolitan middle class is the principal carrier of a cosmopolitan worldview. It gained ground in the Labour Party, first in the radical Bennite insurgency of the 1980s and then in a different form in the New Labour revisionism of the 1990s. New Labour inherited a progressive politics from Clinton’s New Democrats. Cosmopolitan liberalism was linked to liberal market economics in what Robert Reich, Clinton’s secretary of Labor, called progressive globalisation: "There will be no national products or technologies, no national corporations, no national industries. There will no longer be national economies. At least as we have come to understand that concept." With the leadership of Jeremy Corbyn it has become ascendant once more but this time linked to an old fashioned tax and spend statism.

By the first decade of the new century progressive politics had taken on a broader meaning. It was an expectation of the world as being in an unconstrained state of continuous, rapid change. The exemplary progressive individual was the one who broke with the past and the social ties that bound him or her in pursuit of ambition. From 1997 to 2010 progressive politics held together a national coalition sustained by 60 quarters of continuous economic growth. The 2008 financial crash brought it to an end. Labour forgot that change brought loss. It had a determining force which was an unconstrained global capitalism, and its opportunities were structured and distributed along class lines. Labour’s political aspirations and moral values started to detach themselves from its traditional labour interest.

Immigration became the issue around which the class cultural conflict in Labour’s coalition surged.

Immigration

The global geopolitical dynamic of inequality has made migration to Europe a defining political issue. The World Bank economist Branko Milanovic argues that 50 per cent of an individual's income now depends upon the average income of the country in which he or she lives or was born. The income levels of poor people in rich countries is often greater than the incomes of the middle class in poor countries. Life chances are now significantly determined by citizenship.

"The way to improve one’s standard of living," writes Milanovic, "is simply to move to a richer country." People who cannot become wealthier in poor countries will try and migrate to richer countries.

There is no precedent in modern British history for the scale and rapidity of immigration over the last decade. In post war years immigration was a policy solution to acute manpower shortages in specific industries. Migrants were invited to fill vacancies. Both here and in Europe migrants not only faced racism and discrimination, they often found themselves propping up dying industries. When these eventually collapsed migrant communities were excluded from new jobs, reinforcing discrimination and confining minority ethnic groups to the lower end of the jobs market. Despite this racialising of the labour market, high performance in education has driven class and geographic mobility amongst the more successful groups.

In recent decades, with the introduction of the EU's single market and its free movement of labour, immigration has also become an integrated function of the free market economy. Following EU enlargement the asymmetrical nature of its economies created large flows of migration from peripheral countries to the core economies. In Britain, low paid, low skilled migrant labour has enabled government and business to sustain the economic status quo and avoid the costly disruption of innovation and the training and educating of a skilled and productive workforce. The peripheral countries benefit from remittance transfers that sustain millions of families. Poland for example receives over $7bn annually. But the social and cultural cost of emigration and the loss of skilled labour is devastating for some of the already weakened societies both inside the EU and on its borders.  

The orthodox view of immigration as an economic good ignores the social and cultural externalities at both ends of the process. EU immigration was a decisive issue in the referendum campaign, but polling data published by Simon Hix, Eric Kaufmann, and Thomas Leeper indicates that the priority among a majority of British voters is a reduction in non-EU immigration. Ending the free movement of labour does not resolve the political problem.

Labour’s reforms in the 1960s were a major advance for liberal freedoms and helped to transform race relations. The struggles of black parents to end racism in schooling, the campaigns against police racism, as well as popular culture, music and sport have helped to create a multicultural society. More recently inter-faith dialogue has forged relationships across religious divides. But the pressures of globalisation and high levels of immigration have exposed the limits of Britain’s laissez faire approach to multi-culturalism. It has neglected the problems of segregation and disarmed its ability to resolve conflicts of difference. This has become acute with the threat of Islamist terrorism.

Labour historically is the party of the common good and so best placed to resolve these conflicts and build reciprocity. However it is handicapped by a liberal cosmopolitanism which tends to reduce these conflicts to moral questions of right and wrong over which it is the arbiter. Cosmopolitan attitudes and knowledge have also become a badge of class cultural status. The exercise of cultural power is prevalent in the elite universities where virtue signalling and safe spaces, despite their good intentions, silence those uninitiated in the correct language. Class cultural power is used, often inadvertently, to negatively define subordinate class identities. Sometime this is more blatant. After the referendum result well known writers and intellectuals were vocal in their contempt for Leave voters, accusing them of being uneducated, ignorant and gullible.

Elite and middle class condescension has helped to drive working class whites toward right-wing populism. It has limited the ability of social democratic parties to stem the loss of its blue collar support.

Populist anti-immigration and anti-Islamic movements believe that Europe is a civilisation in decline. It lacks the will to defend its Christian values. Post-colonial guilt, declining birthrates and the failure of multiculturalism threaten the end of Europe. To introduce millions of people from often illiberal cultures requires a strong and confident culture to ensure their integration. Europe believes Douglas Murray is "guilty, jaded and dying". Why asks writer Christopher Caldwell should a member of a vital world culture like Islam want to get caught up in a European culture "marked as much by self-doubt as by arrogance"? Europe has "squandered its religious and moral inheritance on a forced march to modernity". It can offer "no higher ideal of the good life beyond, travel, longevity and consumerism".

The left dominated by liberal cosmopolitanism offers no compelling counter argument. It does not have an alternative model of a multi-ethnic nationhood nor a democratic politics to forge it. Instead it has promoted globalisation, immigration and supranational governance. Its failure to offer a new idea of the nation has been compounded by a post-colonial absolutism in which all minority ethnic people are victims of imperialism past and present. It’s a politics that views the social and institutional fabric of the country and the minds of white people as constituted in racism. The nation is simply the constitution of an exclusionary "we". Ethnic majorities who use territorial notions of origins, culture and religion to define their identities are racist. The desire to belong is an assertion of "I was here before you". While it is permissible to belong as in to feel at home, it ceases to be legitimate if an individual protests at its loss. Liberal cosmopolitanism has intensified divisions within Labour’s coalition. Post-colonial absolutism turns identity politics into a zero sum game in which achieving reciprocity among estranged groups is impossible.

Belonging and the common good

For millions of migrants and natives alike, questions of identity and belonging are central to our national political culture.

Belonging to a culture is about emotional attachment to others, to a place, an inheritance and to a language. A sense of belonging is the social foundation of democratic politics. Voting intention is shaped by the partisan loyalties of social groups that are rooted in ways of life. For the great majority politics is not about assessing the policies of one party against another. It begins with the question ‘where do people like me fit in?’ And then, ‘which party is for people like us?’ 

Cultures absorb new ideas, identities and ethnicities. They are dynamic and elastic. They change and adapt. But if the economy that sustains a culture begins to break down that culture can start to fall apart.

The anthropologist Ruth Benedict describes the collapse of a culture as a "loss of something that had value equal to that of life itself". Life continues but the symbols and practices that gave it meaning are gone. When this threatens the new starts to overwhelm what once felt permanent and secure. As social researchers like Michael Marmot and Richard Wilkinson have shown, the identities of the members of the culture become vulnerable to negative reinterpretation by other more powerful cultures in a moral economy of status seeking and shaming. Invidious comparisons between one’s self and others, and between one group and another creates feelings of inferiority and chronic levels of anxiety. The shame of failing in education, of being a loser, of being invisible to those above, and of having little control over one’s life cuts a deep wound in the psyche. Racism has a similar pernicious impact.

Deindustrialization has threatened such collapses across the economic and geographic peripheries of the country. The consequences can be traced in the geographic distribution of for example, chronic illness and Employment Support Allowance, prescriptions for anti-depressants, and lower levels of life expectancy. Globalisation has created flows of migrant people for whom religious beliefs and the traditions of home are vital sources of life and the bastion against the threat of cultural disintegration.

Labour needs to help facilitate inter-ethnic relationships and challenge class cultural inequality. It means understanding the growing complexities of race and class, recognising the value many give to the religious life and the sacred, and developing a democratic politics of the common good which can build mutual understanding and reciprocity.

Making a nation (without nationalism)

The Labour Party grew out of an urban Liberal party which failed, despite its turn toward a more collectivist New Liberalism, to represent the labour interest. It inherited a common culture that was parochial and conservative. Unlike continental social democracy it was proletarian in character. Its middle-class influence was small. Labour came of age in the Dock Strike of 1889 when it organised unskilled labourers and brought together the estranged interests of Catholics and Protestants, the churches and socialists, the working class and parts of the middle class in a democratic politics of the common good.

The Labour Party of the industrial era has gone. Labour now needs to follow the example of its Victorian forebears and construct a new broad labour interest. A Labour Party dominated by liberal cosmopolitanism and its post-colonial derivative ends up imposing an elite culture and its definitions on subordinate identities. It is too divisive and tied to the interests of a dominant class culture to build a national coalition in a multi-ethnic country.

A majoritarian national coalition requires Labour to grapple with different views on relations between men and women, between people and their god, with different ideas about the meaning of sexuality, with the position of the individual within the group, and with the importance to each ethnic culture of rights, responsibilities, freedom of expression and speech. Government action can tackle racism, Islamophobia and discrimination but an enduring social stability needs the countless individual and group relationships and encounters that take place across social and cultural divides. Belonging to a nation takes the form of a membership earned by reciprocity.

Now more than ever Labour needs to be a broad church and to have a story about national renewal. To be a great reforming government Labour must build a multi-ethnic coalition between the Remainers and the Leavers in the big cities and towns, across the north and the south, and amongst the middle classes and the working classes.  In 1948 the year of Indian independence, the historian Arnold Toynbee wrote, ‘our non-Western contemporaries have grasped the fact that, in consequence of the recent unification of the world, our past history has become a vital part of theirs . . . our neighbours' past is going to become a vital part of our own Western future’. Almost seventy years later a new country is struggling to emerge out of the complexities and conflicts of race and class.

Labour is the only party that can give form and meaning to this new old country and so its politics must be parochial, national and international. As the Irish poet Patrick Kavanagh has said, all great civilizations are based on parochialism. ‘Parochialism is a universal and deals with fundamentals".

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression