A decade has now passed since the collapse of Lehman Brothers, precipitating a worldwide financial crisis. In country after country the state intervened to save capitalism from itself: the commanding heights of the US mortgage market and the UK banking sector were, in effect, nationalised.
In the months that followed, Britain and other major states deployed the classic Keynesian tool of fiscal stimulus (public spending and tax cuts). China, as the economic historian Adam Tooze has noted, responded with “the most dramatic work-creation stimulus in history”.
Such interventions prevented a global recession becoming a depression, as had happened in the 1930s. But the premature and excessive austerity imposed by the UK and other countries led to the slowest economic recovery in history. In Britain, where average annual earnings are nearly £800 below their pre-crisis peak, wage growth has been weaker than at any time since the Napoleonic wars. In the European Union, where the structural flaws of the eurozone thwarted recovery, the far right has resurged across the continent (most recently in Sweden, as Andrew Brown writes this week).
It is inaccurate to say, as some do, that no lessons have been learned from the financial crisis. Banks have been forced to increase the amount of capital they hold against potential losses and “shadow banking” has been brought under regulatory control.
But in other respects, as the economist Grace Blakeley writes, far too little has changed. The UK remains dependent on a financialised model of growth sustained by exorbitant consumer debt. Under a system of so-called privatised Keynesianism, households are forced to borrow more as the state borrows less. The meagre GDP growth forecast over the next five years is still dependent on household debt rising from 139 per cent of disposable income to 146 per cent. In an age of austerity and wage stagnation, work is no longer a guarantee of economic security.
None of this, however, is inevitable. For Britain, the sixth largest economy in the world, with its own currency and low borrowing costs, austerity has been a choice, rather than a necessity. National governments have a duty to manage the public finances responsibly. But as economic evidence shows, the best long-term means of debt reduction is productive investment (which is lower in the UK than any other G7 country), not ideologically driven cuts. Government borrowing, it is said, will “burden” younger generations. Yet austerity has enfeebled the collective institutions that they depend on.
After eight years of anaemic growth, the UK is now due another recession, based on historic trends. With Bank of England interest rates at just 0.75 per cent, the Conservatives’ favoured combination of “monetary activism and fiscal conservatism” would no longer be an option. Yet Britain has the capacity to renew itself and abandon a short-termist, financialised model for one founded on long-term investment. Sadly, it is preoccupied by Brexit.
This article appears in the 12 Sep 2018 issue of the New Statesman, The return of fascism