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  1. The Weekend Interview
4 February 2023

Martin Wolf: “Austerity and Brexit made everything worse”

The chief economics commentator of the Financial Times reflects on the failures of globalisation and how the UK became the sick man of the West.

By George Eaton

In the preface to his new book The Crisis of Democratic Capitalism, Martin Wolf issues what feels like a divine indictment of humanity: “I have never taken peace, stability, or freedom for granted and regard those who do as fools.”

Such scorn reflects a personal awareness of the fragility of life. “My parents were both refugees from Hitler. Most of their wider families, pretty well all their wider families, were killed,” Wolf, 76, the chief economics commentator of the Financial Times, recalled when we met at Bracken House, the title’s London office. 

The lesson Wolf drew from the experience of his father, who left Austria in 1936, and his mother, who fled the Netherlands in May 1940, was that “societies can be completely torn apart and transformed – and for the worse. The hopes one had can be utterly disappointed and confounded.”

This realistic – not pessimistic – mindset ensured Wolf was intellectually braced for the threats that haunt this century: great power conflict, economic turmoil, pandemics and the climate crisis. His new 474-page book anatomises what he describes as the “sickness” of the two systems he has long placed his faith in: representative democracy and the market economy. 

In Wolf’s view, the fraying of the postwar social democratic settlement created the conditions for demagogues – Donald Trump, Boris Johnson, France’s Marine Le Pen, Italy’s Giorgia Meloni – to thrive. 

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“There was a reversal in terms of the liberalisation of the economy, globalisation, the entry of completely new economies into the world economy, profound technological changes, which changed the role of industry in our society and employment in industry, deunionisation, a whole slew of changes, which undermined that economic settlement…  And so society, I think, has now started to fall apart, it has become less cohesive, radically less cohesive.”

For many, the disorienting effects of the free-market revolution launched in the 1980s are far from a novel theme – and Wolf confesses that he was initially too relaxed about globalisation. It was during his time at the World Bank in the 1970s that he became a champion of markets and an admirer of Friedrich Hayek, the Austrian economist lionised by Margaret Thatcher. Has Wolf, unusually, moved left with age?

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“I think my politics have gone in a circle and have always reacted to what I’ve seen at the time. I have moved from being centre left to centre right and back again to centre left. I’m very, very close to the Martin Wolf of 1965. I was a Gaitskellite,” he said in reference to Labour’s social democratic leader Hugh Gaitskell. 

Wolf’s reconversion goes beyond the awareness that markets can self-destruct as well as self-correct, as the 2008 global financial crisis demonstrated. More recently, he has “begun to perceive that it’s difficult to sustain a democracy if people become too unequal. And that’s not something I had been as aware of as I should have been. That brought me back very much to the ameliorationist, social democracy of the Swedish, Nordic, Dutch – don’t forget my mother’s Dutch – type. 

“But the key thing for me, and it’s very much in my book, is that people who broadly believe in a civilised marriage of a market economy with an active welfare state are the only workable centre for our politics. I don’t feel very strongly about whether it’s Labour or sensible Conservatives, of whom there are unfortunately now very, very, very few.”

Like John Maynard Keynes, Wolf insists that if he has changed his mind it is because the facts have changed. “I would be pretty suspicious of anybody who said nothing has happened in the last half century to change my view of the world at all. That either indicates you’re not thinking or you’re not looking.”

On the day we met I put it to Wolf that the UK is increasingly viewed not just as the sick man of Europe but as the sick man of the West. Soon afterwards, the International Monetary Fund duly forecast that Britain would be the only major economy to shrink this year. What does Wolf, who joined the FT back in 1987, think has gone so badly wrong?

“We seem to have the ills of all the high income countries and then some of our own. And instead of confronting this very painful reality, we pursued some pretty stupid policies. First, austerity, which made everything worse, it meant very weak investment. We didn’t pay any attention to the genuine weaknesses, the fact that our corporations have the lowest investment rate of any of any corporate sector in the world, what’s wrong with that? Why is that happening? 

“We made everything worse, in my view, obviously, dramatically, by going for the false medicine, the quack medicine of Brexit,” Wolf declared, his baritone reverberating with indignance.

“We had one thing going for us which was we had access to the huge domestic European market, a very attractive position, which we could have done much more with by making ourselves, not like Ireland, of course, but still the place that any sensible business would want to be in if they wanted to access the whole of Europe. We decided we didn’t want that, which was insane, in my view, and will become more and more obvious over time.”

Wolf’s strident opposition to austerity from 2010 onwards contradicted the FT’s editorial position – the title endorsed the Conservative-Liberal Democrat coalition at the 2015 general election, declaring that “the mix of a loose monetary policy and a tight fiscal policy has worked. Mr Cameron and his chancellor George Osborne, supported by Mr Clegg, showed political courage to tackle the public finances and shrink the state.”

Does Wolf now feel vindicated?

“One of the wonderful things about working at the FT, which has been an immeasurable privilege, is that they will always allow me to write whatever I like. I have never been censored by the editor even when, famously, I used a quotation of Goebbels to describe the malfeasance of our previous prime minister but one.

“And at various stages I have been very much against the FT line and austerity was one of them. Economically, I thought we could have continued to run a fiscal deficit, it was going to be very easily financeable because interest rates were going to stay low for a very long time, which they did. And if we were going to get back to growth, we needed sustained demand to make people in business feel optimistic. If demand is growing, then they feel they have to invest. And if they have to invest then that’s sustained demand. So I took a very Keynesian view.”

Wolf’s second main objection to austerity was the government’s overweening emphasis on spending cuts, which accounted for around 85 per cent of the fiscal consolidation, over tax rises. 

“I thought that was bound over time to cause big social problems because what they were doing was slashing spending in ways that couldn’t be seen so well, it turned out mostly local government. And over time we discovered that very important social services were badly squeezed…  George Osborne and David Cameron essentially decided that the cost should be borne by the weakest in our society – and I thought that was wrong. But I also thought, though not as clearly as I do now, that would have political consequences and it has. The FT at that stage had a different view and I think now the FT basically agrees I was right.”

Wolf’s other defining division with the title was in the late 1990s and early 2000s over whether the UK should join the Euro. He was opposed to membership on the grounds that “the interest rates that were suitable for Germany would create a monstrous credit boom here and destabilise the economy”. The UK was hardly spared this experience, as the financial crisis proved, but it did at least retain independent control of its fiscal and monetary policy. 

“That’s why I was against joining. But I also wrote in 1997 – it’s one of the best columns I’ve ever written – that we probably shouldn’t join the single currency but if we don’t we’ll probably end up leaving the EU, we will move from being semi-detached to detached. And this really tore me because I’m a European, it’s my background.”

At one point in Wolf’s panoramic book, he melancholically reflects: “Now in my 76th year, I cannot have many left. But the children [his six grandchildren] can reasonably hope to see the 22nd century.”

What are Wolf’s hopes for the rest of his life?

“To be well enough to continue to work in some form because I love what I do, I love the writing and the challenging ideas. I don’t want to truly retire because I think it’s more or less the same thing as death.”

But though Wolf does not intend to go gentle into that good night, he is, as ever, a realist. 

“When it stops, I don’t think I’m very interested in life beyond that. I don’t understand the people who are trying to make themselves immortal. At some point, one properly should end.”