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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


    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


    Total pledged by the US alone towards solving the crisis


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


    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


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


    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


    Increase in UK company failures between late 2007 and late 2008


    Drop in level of Chinese exports during January


    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 a journalist and academic. He is currently a visiting fellow at the London School of Economics Asia Research Centre and at the National University of Singapore. Jacques previously edited Marxism Today and co-founded the think-tank Demos in 1993. He writes the World Citizen column for the New Statesman. His new book on the rise of China, When China Rules the World, will be published in June.

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

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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.

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Matteo Renzi, the scrapper in the swamp

 Italy’s prime minister – “Europe’s last Blairite” – vowed to take on vested interests and smash open the economy. Can he still succeed?


In the summer of 2009, Daniele Caponi graduated from Sapienza University in Rome. His CV looked impressive. He had a degree in languages, and was fluent in four: Spanish, German, English and Italian. But the timing of his entry into the job market was terrible.

The global financial crash the previous year had badly affected Italy’s already weak economy. Prospects for graduates were so bleak that the best work Caponi could find was as a taxi driver. Six years later, the situation remains so precarious – youth unemployment is running above 40 per cent – that Caponi says he is “proud and honoured” to have a job at all.

Intelligent, confident and articulate, Caponi would appear to be precisely the type of person that Prime Minister Matteo Renzi has in mind as a beneficiary when he says he wants to jumpstart Italy’s economy by breaking it open to competition – with a war on entrenched interests and an influx of foreign capital leading the way to more jobs. Yet Caponi also embodies forces conspiring to defeat him. As a taxi driver, he belongs to one of Italy’s “closed-shop trades” (which also include chemists and lawyers) that hold back the economy, clinging to privileges and blocking outsiders from entry. For members of these trades, the benefits of the status quo are clear: Caponi makes enough money to wear smart clothes, eat at good restaurants and go trekking in south-east Asia or Latin America every year.

He is not willing Renzi, who has been called “Italy’s Tony Blair”, to fail, but thinks it is inevitable that he will. For the man at the helm of the centre-left Democratic Party, who a year and a half ago – at the age of just 39 – became his country’s youngest-ever prime minister has the task of changing not only Italy’s legislation, but its way of life. It is a struggle of allegiances versus globalisation; gerontocracy versus meritocracy; made-in-Italy quality versus stark economic efficiency – and the rule of law versus the tendency to bend it.

On the day I meet Caponi, he is illegally cramming extra passengers into his car because a transport strike has affected his takings. “You see, Italian politics mirrors Italian people,” he says. “Even me, you find me criticising politics. But look at what happened today. I pulled two rides into one – I did something I was not supposed to do.”


When Renzi took over as Italy’s leader in February 2014, many in the country felt it as a gale of fresh air after two decades of political tragicomedy and economic stagnation dominated by Silvio Berlusconi, whose main interest in power, his many disparagers say, was to protect his media empire and keep himself out of prison. That protracted era of zero growth, from 1994 to this year, left Renzi with enormous problems: more than one in every ten people out of work, chronic dips into recession, and a national debt that is 135 per cent of GDP, against 95 per cent for France, 90 per cent for Britain and 75 per cent for Germany. Add to that one of the rich world’s lowest fertility rates, at 1.39 births per woman – a demographic crisis that prompted the health minister to call this a “dying country”– and it may seem surprising that anybody would want the job of extracting Italy from the bureaucratic and parliamentary mess that Italians call il pantano, “the swamp”.

Renzi, however, seems to relish challenges that are the proper measure of his ambition, which was apparent from an early age. The son of a centre-right municipal councillor, he grew up in Rignano sull’Arno, a quiet Tuscan town outside Florence, where he became a keen Boy Scout. (His official website uses a quotation from Robert Baden-Powell,
the founder of the Scout movement, as its epigraph: “Leave this world a little better than you found it.”) The modest scope of this idealism provides clues to Renzi’s combination of pragmatism and engagement.

His passion for politics began in high school, and as a law student at the University of Florence he co-founded a committee to help Romano Prodi, a Democratic Party stalwart, become prime minister. Around that time, the 19-year-old Renzi appeared on the Italian version of Wheel of Fortune, raking in £20,000. It was a precocious sign of his penchant for games of risk.

His first break in politics came at the age of 24 when he became provincial secretary of the centrist People’s Party. From there, his rise was fast: president of the province of Florence at 29; mayor of Florence, a much bigger job, five years later. As mayor, Renzi shook up the city by cutting back sharply on the number of councillors, increasing the efficiency of public services and boosting welfare spending. As Italy began to take notice, the young mayor already had his eyes on a bigger stage: national politics.

In early 2013, he sensed the moment had arrived. In parliamentary elections, one in four Italians had voted for a comedian, Beppe Grillo, whose populist Five Star Movement proudly stood for little other than revulsion with the ruling elite. It was a turning point in Italian politics. After the Berlusconi era – and a brief technocratic government led by Mario Monti, who imposed austerity to pull the country back from a financial abyss – Italians were fed up with the political class and hungry for change.

Renzi, then still mayor of Florence, blitzed TV and social media with a vision of himself as the saviour of Italy, while his Democratic Party colleague Enrico Letta plodded along at the head of an unwieldy coalition government. Renzi promised to rottamare – “wreck” – the system (from this he acquired the nickname “The Scrapper”). He was bold and passionate and, like Berlusconi, he projected sunny optimism. Best of all, as mayor of Florence from 2009, he was an outsider, untainted by the machinations and scandals of national politics. Many Italians dared to hope again, as Renzi promised a bold reform programme that would generate jobs and revive the economy.

Late in 2013 he won the Democratic Party leadership, and quickly showed his ruthlessness by orchestrating what the Italian press called a “palace coup”, toppling Letta the following February. (A popular cartoon from the time shows Renzi in a relay race, handing his predecessor a stick of dynamite.) Days later, without ever having been even a member of parliament, Renzi was appointed prime minister.


While many Italians began to place their hopes in Renzi, there was also an undercurrent of suspicion about him that still prevails. One reason for this is his opportunism. On a stroll through Rome’s best food market, in the rough-and-tumble Testaccio district, I heard a story about him that went like this.

“A municipal councillor of Florence from the time that Renzi was mayor was once asked by a journalist: ‘Renzi – according to you, is he a capable man?’

“The councillor responded: ‘Yes, he is capable of anything.’”

Indeed, while Renzi purports to be a man of the left he often doesn’t sound like one. Besides smashing open protected sectors and taming the trade unions, he wants to overhaul the bloated and coddled public sector and attract overseas capital, which would inevitably entail foreign corporate takeovers. In the context of the rise of far-left parties in Europe, such as Syriza in Greece and Podemos in Spain, and given Jeremy Corbyn’s ascent to the Labour leadership in Britain, Renzi is increasingly looking like Europe’s last Blairite. (He got to know Blair when he was serving as mayor and Blair holidayed in Tuscany, and they became friends. Last year, Blair told the newspaper Corriere della Sera that Renzi was “the only way forward for Italy’s left”.) Indeed, on 21 September, Renzi appeared to be channelling Blair when he said that Corbyn’s victory was evidence that Labour “delights in losing”.

Yet there are signs that Renzi may not be winning his own battle. Another reason for Italians’ growing scepticism about him is that six months into his premiership the country slipped back into recession. This year, according to the European Commission, Italy is projected to eke out 0.6 per cent growth. By contrast, Spain and Portugal, which also have suffered severe debt and austerity crises, are forecast to grow at 3.1 and 1.6 per cent, respectively.

Meanwhile, unemployment remains stubbornly high despite the passage in the spring of Renzi’s signature “Jobs Act” – a package of laws that aims to generate employment by scaling back job protections and offering tax incentives to companies that hire long-term workers (as opposed to the surging number of people on precarious short-term contracts). And reform means nothing unless people believe it will work. Foreign investment has increased but Italian businesses are clinging to their capital. After rising early this year on the back of the imminent labour reforms, business confidence slumped again over the summer.

Critics say that whatever growth Italy does achieve this year may be due less to him than to another Italian: the European Central Bank chief, Mario Draghi, who has sought to invigorate the eurozone economies with a flood of easy credit. Some economists say that without a cheaper euro to boost its exports, Italy would still be in recession.

Meanwhile, in times of uncertainty, Italy’s business cliques hunker down to their old ways – hostile to hiring young people and preventing newcomers from encroaching on their turf. Renzi is fighting hard to tame these entrenched interests. The problem is that he may be running out of time. His approval ratings have nearly halved, down from more than 60 per cent after he became premier to around 32 per cent today.

“If nothing happens, especially in terms of kick-starting the economy, then people will start saying you’re just hot air,” said Vincenzo Scarpetta, an expert on Italy based at the Open Europe think tank.

One might imagine that students here would be among Renzi’s biggest fans, given that he is promoting policies that would help them find work. But on the Sapienza campus, Caponi the taxi driver’s alma mater, I cannot find a single student who believes that Renzi could improve their prospects by the time they enter the workforce. The overwhelming message: once I graduate, I’m out of here.

Beatrice Parsi di Landrone, studying chemistry, shakes her head at the thought of change being possible in Italy. The economy, she says, is built on patronage and favours that keep talent out of the best jobs. She wants to move to England and apply her skills in cosmetics, working for Max Factor.

“You can’t work here unless you have an inside track,” she explains. “For 20 years now, the government has been ruining Italy, even if we’re the best in the world in so many things. Overseas, it’s our brains that make a difference.”

The message on the sweatshirt worn by Mirko Mandarino, a medical student, speaks for his generation: “F**KIN’ PROBLEMS”. He is from Calabria, in the deep south, where people are poorer on average than in other parts of Italy. That makes it even harder for him to succeed in this country, where
many northerners hold southerners in contempt. Under Renzi, the gap between north and south has widened: national GDP fell 0.4 per cent last year but the south suffered a 1.3 per cent decline. “Renzi?” Mandarino says with a chuckle. “He’s an opportunist. A social climber. That’s how he’s gotten to where he is. My future? Outside of Italy. There are no other alternatives.”

Like Parsi di Landrone, Mandarino laments a culture of vested interests that blocks young people from achieving their dreams. “Nobody wants to give up anything,” he says. “They’re clans. The mentality is mafioso.”

Still, he feels sympathy for older Italians who cling to jobs and power. “In Italy, an old person can’t give way to the young, because at his age he wouldn’t find anything else. I have an uncle in Canada. He got fired at age 48. The next month he found a new job. That kind of thing doesn’t exist in Italy.”

Christian Abete, a classics student, sums things up: “We export wine and graduates.”


Franco Pavoncello, a political scientist and president of John Cabot University in Rome, meets me on the terrace of Vanni, a café in the genteel Prati district. Of the dozens of Romans I speak to, Pavoncello is the only one who believes that Renzi will succeed. “I am bullish about Italy,” he says.

The professor presents a heroic narrative of the prime minister, calling him a “revolutionary figure” – and only time will tell whether he is right. But he does make a basic point that it is hard to argue with: “He’s the only game in town. The right is dead. Completely melted. The left continues to be the usual communist left. It’s a disaster.”

It is the disarray among Renzi’s opponents not only on the right, where Berlusconi’s Forza Italia is fighting to regain relevance, but also in the crumbling old guard of the Democratic Party, that may allow him to press forward. “Nobody can stop this avalanche,” Pavoncello says.

That is an exaggeration, as the reform process is moving slowly. The big question is whether the Italian people will have the patience to endure a drawn-out and complicated overhaul – which promises pain to millions who benefit under the status quo – as the economy continues to stagnate. A stumble for Renzi’s party in regional elections in late May signalled threats hovering over his future. Voters are growing hostile to his pro-business ethos, alien to Italian tradition, and his own camp is beginning to bridle under a leadership style often described as dictatorial. Adding to his problems, the xenophobic, anti-euro Northern League’s vote share jumped across the nation, extraordinary for a party that long advocated a divorce between the affluent Italian north and the poorer south.

Pavoncello insists that Renzi has the political smarts and determination to be a transformative figure. But won’t he hit the brick wall of Italians’ cherished way of life?

“What way of life?” he fumes. “People staying at home? Fifty per cent youth unemployment? Taxi drivers who think they’re middle-class? In New York taxi drivers are not middle-class. Here taxi drivers make three, four, five thousand dollars a month. They feel they are shopkeepers. Taxi drivers are not middle-class. They are the bottom of the class! Can you remain middle-class when you have Uber? You can fight. You can try. But the world is going against you.”

Roberto Fabiani, the spokesman for Rome’s main cabbies’ association, who is a taxi driver, too, does indeed come across as middle-class. He wears Ray-Ban aviators, designer stubble and a crisp white shirt as he meets me at the Romana Tassisti headquarters on the outskirts of the city. Like Caponi, he is university-educated and asks why he shouldn’t have a pleasant family life after working a hard shift behind the wheel. He sees Renzi’s argument about reviving the economy by making it easier for firms to fire as being fundamentally at odds with Italy’s communitarian sensibilities.

“This is a philosophy that is molto liberal,” Fabiani says of the Jobs Act programme. “In Italy we have a vision that is very much to the left. Article 1 of our constitution says that Italy is a country founded on work. Translated, that means that every citizen should have the right to a dignified job, not extravagantly paid, but one that allows him to live in a dignified manner. ‘Dignified’ for me means not only to have an income that allows me to live, but also the security to know that I can live my life. If I’m hired, and in three months somebody says ‘you’re no longer needed’, that’s a problem.”

Italy’s commitment to social welfare, with its roots in age-old ideas about community and family, has provided cushions that allow people to live with dignity even in the midst of a sharp downturn. Yet millions of young Italians are living with precisely the indignity of uncertainty that Fabiani finds unacceptable. He is prepared to fight to protect his own. “If this happened,” he says of Renzi’s plan to break open closed sectors, “it would be the end. We’d take a hard position. Until the bitter end.”


There is no country in the world where cliques do not fight hard to keep their privileges. In Italy, however, the instinct is particularly strong; and this may present the greatest challenge of all to Matteo Renzi’s desire for reform. Italy’s historical experience as a jumble of city states and patches of empire has left a structure of allegiances and patronage that poses daunting obstacles to change.

Campanilismo, loyalty to the village bell tower, is central to Italian life. This signifies loyalty not only to your village, but to your trade association, your social circle, uncles and cousins, and, at the highest echelons, your political faction or business cabal.

“I’m not Italian, I’m a Roman,” says Caponi the taxi driver. “This is another thing that we are missing. We aren’t like the French or the Germans or the English, who are French and German and English.”

It’s a spirit captured in a song by the singer Luca Carboni called “Inno Nazionale” – “National Anthem”. You might expect a patriotic paean, but it goes like this:

“I’m too much of a Bologna man,

And you’re much too Neapolitan.

Him? Too much from Turin,

And you guys too stuck in Bari.

And if we’re all too proud,

They’re all too Venetian.”

The song continues in this vein, a hard rap with a techno beat. In its simplicity, this national anthem conveys how the Italian identity is precisely the lack of one. The paradox hits home in the song’s conclusion:

“We were once too fascist, and then

Too don’t-give-a-fuckists . . .

And then became too communist,

As well as too Christian-Democratic.

And even as time passes,

We’re still too ITALIAN!”

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide