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25 May 2022

How Britain’s failure to reckon with global forces led to a cost-of-living crisis

At the end of the era of globalisation and market-led capitalism, there is no clear successor to this crumbling model.

By John Gray

For those with long enough memories, the current British economic crisis resembles that of the 1970s in a number of ways. Not only is inflation rising and seemingly uncontrollable, but public services are stretched, sometimes – as in the NHS – to breaking point, and trade union militancy is reviving. There is a pervasive sense that the government is losing control, and it is hard to escape the suspicion that we are nearing the end of a regime.

That regime is the market-led capitalism that Margaret Thatcher installed, which every British government has consolidated ever since. In 1979, the postwar settlement was foundering. A corporatist edifice built on collusion and collaboration between corporate and trade union power was visibly crumbling. Armed with a few simple ideas and policies, Thatcher succeeded in replacing it by a settlement that endured for a generation. That era is now in the past. Rather than market choice, voters are demanding shelter from market chaos.

Unlike in 1979, however, there is no clear successor to a failing model of government and the economy. Haunted by the spectre of Corbynism, Labour has reverted to the Blairite orthodoxies of the late Nineties. Instead of offering a compelling alternative to the raddled crew clinging to power in Downing Street, Keir Starmer has presented his party as less scandal-ridden and more competent. At the same time, Boris Johnson’s project of reinventing the Conservatives as the political voice of working people has stalled. It is not only that in every aspect of domestic policy Johnson has proved to be emptier of ideas than his worst detractors could have imagined. The Conservative Party as whole is an empty vessel. Having come to power on “getting Brexit done”, it has no idea what to do with Brexit.

In other circumstances the intellectual exhaustion of the two main parties might not matter greatly. The British government could trundle on, not terribly competently, without recurring crises. But the regime shift that is under way reaches back well before the years when Edward Heath, Harold Wilson and James Callaghan were in office. Across the world, a century-long trajectory of advancing and retreating globalisation has entered a new phase.

[See also: Why liberalism is in crisis]

The First World War marked the end of the international economic order that developed under the aegis of European power. As the continent sank into dictatorship the pre-1914 global market disintegrated, and it was only 100 years later that an analogous economic order was in place. Believed by its neo-liberal architects to be everlasting, globalisation began its present breakdown following the Russian invasion of Crimea in 2014. The war in Ukraine is accelerating this process.

A new wave of de-globalisation is the context in which the current difficulties of the British economy must be understood. Rising inflation and a worsening cost-of-living crisis are not simply consequences of past and present errors by the Bank of England, damaging though these may have been. Fundamentally geopolitical in their causes, they are blowback from intensifying great-power struggles.

Vladimir Putin has weaponised world food supplies by blockading exports from Odesa. Hunger and unrest in poor and vulnerable countries such as Egypt, Tunisia and Morocco will be the result. In Europe, Moldova is being badly hit by shortages of seeds and fertiliser.

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Escalating energy costs reflect Europe’s attempts to wean itself off Russian fossil fuels and Putin’s increasing threats to curtail supplies to countries he perceives as hostile. In addition, Xi Jinping’s brutal and ruinous zero-Covid policy has weakened supply chains already damaged by the pandemic. Many of the global logistical networks that kept prices low are now disrupted. Despotic regimes waging full-spectrum hybrid warfare and making catastrophic policy blunders do not breed economic stability. Leaping prices in British supermarkets are part of the resulting fragmentation of the global market.

Yet it would be a mistake to put all the blame for our economic problems on malevolent autocrats. A pivotal role was played by monetary expansion in the wake of the financial crisis of 2008. The ensuing experiment in electronic money-printing, commonly known as quantitative easing, may have been unavoidable – without it, there could well have been another Great Depression. But turning on the money taps inflated financial assets beyond any reasonable levels, enriching those who possessed them while leaving the majority with stagnant or declining incomes. So-called populist movements were partly responses to these growing inequalities.

Neoliberals in all parties believe the answer to inflation is an aggressive programme of interest rate rises. But mounting debt has left many companies and households dangerously exposed. Abruptly turning off the money tap would risk crashing the economy. There is no way of returning to the economic status quo before the financial crisis.

Illustration by Barry Falls

A Hobbesian demand for security from hardship and destitution is driving an expansion of government throughout much of the world. Voters are looking to the state for protection against disruption of their daily lives. People who cannot afford both to eat and heat their homes will not support governments that proclaim their impotence in the face of global forces. Ruling parties that fail to grasp this fact and act on it are headed for a long spell out of power.

It would be fanciful, at this point, to expect the Conservatives to muster any display of collective purpose. Partygate is far from over. The photographs that have appeared of the Prime Minister toasting his departing communications chief Lee Cain next to a table littered with wine bottles will surely be followed by others that are equally if not more damaging. The electorate will not forget the indifference and contempt Johnson has displayed for their sufferings during lockdown.

At the same time, his party does not want a leadership challenge. With Rishi Sunak no longer a contender, there is no candidate around whom a coalition of MPs could easily coalesce. A polarising contest between Liz Truss and Jeremy Hunt could divide and further damage the government in the eyes of voters. Yet it is hard to see how an already exhausted party can limp on for over two more years. A change of leader would not overcome the Tories’ fundamental weakness, but it could offer MPs some consolation.

Even if Johnson was capable of devising a fresh policy package, the institutional inheritance of neoliberalism would make a change of direction problematic. Gordon Brown conferred independence on the Bank of England in 1997. Until the present governor took over, the Bank discharged its duties tolerably well. Mistakes were made, as the former governor Mervyn King has noted in an unusual intervention. But Andrew Bailey’s unwise reference to “apocalyptic” rising food prices plants a question mark over the powers of the institution. If inflation has proved to be neither transitory nor moderate, what does he propose the Bank do about it? Doing nothing is hardly an option, if only because a protracted run of high inflation in daily necessities could spark civil disorder, as it has in some emerging states. The notion that such disturbances cannot happen in Britain could be severely tested.

[See also: Russia’s Black Sea blockade is a problem for the whole world]

At a time when it most needs them, British politics is bereft of radical ideas on the role of the state. A hard Brexit makes little sense unless it enables the UK to diverge from European regulatory frameworks, but the government has done little to make use of the freedom it gained when it left the single market. The impasse over the Northern Ireland protocol is symptomatic of a profound incoherence in thinking.

The boundaries between states and markets that supposedly existed in the era of globalisation were always largely imaginary. Allowing high-tech firms to pass into potentially hostile foreign hands – as happened a year ago, when a Dutch subsidiary of a company part-owned by the Chinese state acquired Newport Wafer Fab, a Welsh microchip factory – poses a threat to national security. Sticking to neoliberal dogmas today is dangerous and politically costly.

Illuminating headlines: Londoners read front-page stories about the ongoing miners’ strike by candlelight, February 1972. Photo by Ian Showell/Keystone/Getty Images

Labour has learned the wrong lessons from the election debacle of 2019. While traditional Labour voters rejected Jeremy Corbyn’s anti-Western politics, his economic programme was not unappealing to many of them. Reframing Labour as a bastion of fiscal orthodoxy will not win them back. Equally, neo-Thatcherite free marketeers misread traditional Labour voters’ support for Brexit. People in Blyth Valley and Stoke-on-Trent did not vote to leave the EU in order that the government could launch a programme of across-the-board deregulation and unfettered free trade. They wanted protection from global markets that were threatening their jobs, and better public services.

British politics has failed to adjust to the realities of a rapidly de-globalising world. When Thatcher dismantled the postwar settlement in Britain she was tracking a trend that was already under way. Market reform in China began after the end of the Cultural Revolution in 1976. Ronald Reagan may have been Keynesian in his attitude to budget deficits, but he was a staunch free-trader. Thatcher’s programme was part of a worldwide shift to free markets.

Over 40 years later, longer historical cycles are at work. As in 1918-19, de-globalisation has coincided with a global pandemic. Geopolitical conflict is being waged by new players. The Great Game has resumed in Africa, with China leading the struggle for control of scarce metals. In Ukraine, empire is being resisted by an anti-authoritarian nationalism, but this time it is Russian imperial power that is being challenged. Once a major force, Europe is a geopolitical nonentity. The willingness of America to intervene in Europe’s wars, however, cannot be taken for granted.

The passing by an overwhelming Senate majority of Joe Biden’s $40bn package suggests a strong consensus on aiding Ukraine in prosecuting the war, but the dangers of escalation and darkening economic prospects in the US could quickly erode it. Already, the New York Times and Henry Kissinger at the World Economic Forum in Davos are warning against Ukraine defeating Russia and calling for a reversion to the borders in place before the war. Vladimir Putin may yet be proved right in his belief that Western opposition to his aggression will fracture and falter.

The deeper concern on Capitol Hill is the threat from China. By some measures it is nearing parity with the US in military and economic terms. Yet there can be no certainty that China will move on to achieve global supremacy, or that the US will act to reclaim its position as the hegemonic power. Instead, there may be a protracted stand-off. With America descending into its worst culture war ever over the issue of abortion, the country could be entering a period of introversion. Whether a Republican administration would continue Biden’s policy towards China is an open question. If Donald Trump runs in 2024, all bets are off. Rather than a period in which the baton of leadership is passed from one great power to another, as it did when Europe’s self-destruction enabled American ascendancy, this could be the beginning of an era in which there is no global hegemon.

We will not have to wait another century to see how the new cycle works out. These days, for good and ill, events move rather more quickly. As long as the balance of nuclear terror continues to hold, the world wars of the 20th century can be avoided; but another global regime will not emerge in a year, or a decade. It may be some while before the supermarket shelves look as they did in times we used to think normal.

[See also: The new Iron Curtain]

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This article appears in the 25 May 2022 issue of the New Statesman, Out of Control