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Are there turning points in recent UK history?

Summary:
This post follows on from my posttwo weeks ago, where I argued that there was a degree of inevitability that led us to governments led by Boris Johnson and Donald Trump. To summarise that argument, it is that right wing neoliberal governments in both countries have pursued policies that benefit the few rather than the many, and so to win elections they have pushed socially conservative ideas. But that push has been limited by a knowledge that some socially conservative policies can damage business interests: so in the US immigration control was not on the agenda and in the UK targets were missed. However neoliberalism also encouraged and legitimised wealthy individuals to meddle in politics, and some chose to push for even greater redistribution and less regulations. They could achieve

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This post follows on from my posttwo weeks ago, where I argued that there was a degree of inevitability that led us to governments led by Boris Johnson and Donald Trump. To summarise that argument, it is that right wing neoliberal governments in both countries have pursued policies that benefit the few rather than the many, and so to win elections they have pushed socially conservative ideas. But that push has been limited by a knowledge that some socially conservative policies can damage business interests: so in the US immigration control was not on the agenda and in the UK targets were missed.


However neoliberalism also encouraged and legitimised wealthy individuals to meddle in politics, and some chose to push for even greater redistribution and less regulations. They could achieve this by radicalising the right wing voter base (the US Tea Party) and in the UK by pursuing Brexit, in both cases in effect taking over the main right wing party. FPTP and the two party system were critical in both cases, because more moderate right wing politicians were unable to ignore this threat from the right. If that brief summary sounds unconvincing, please read the postin full.


The title of that post had a ‘can’ rather than a ‘will’, because I remain unsure whether neoliberalism in its original Reagan/Thatcher form was bound to end this way (an issue I initially explored here). I explore this issue further in this post. Were there points over the last forty years when some people could have done something different to avoid ending up with a populist plutocracy? I’m going to restrict myself to the UK here, because my knowledge of the US is less, but I would be very interested in thoughts about possible turning points in the US.


I’m going to take the emergence of neoliberalism in the UK as given. Both Thatcher and Reagan cut higher rate taxes, so I think it is also given that these governments both encouraged and legitimised the importance of money in politics. It is possible to imagine a form of neoliberalism that sees challenging monopoly power as part of its ideology (ordoliberalism?), but that never seemed a strong part of the neoliberalism of Thatcher and Reagan.


It is possible in theory to conceive of a neoliberal government that might avoid the temptation to exploit social conservatism as an election winning device, but hard to imagine a government in the Thatcher/Reagan tradition doing so. Power is everything for these governments, and attracting left wing socially conservative voters by pushing socially conservative policies and rhetoric is too tempting (and effective). It also chimes well with some traditional party members of the hanging and flogging variety.


As a result, I think a turning point has to involve the final stage of the process I described in my earlier post, which in the UK involved the takeover of the Conservative party by Brexiters. Could this have been avoided in the UK at some turning point in history? We can start from the present and go backwards through time.


The threat from UKIP


It is often suggested in the UK that if May had been prepared to do a deal with Corbyn for a much softer Brexit then Johnson/Gove/Cummings would not be in power today. Was the turning point the attempt by May to define a Brexit that pleased most of the Conservative party (together with her antagonism to immigration)? To discuss this and some of the other potential turning points we need to talk about UKIP.


UKIP was the key ingredient in taking over the Conservative party. It posed a constant perceived threat to the Conservative’s ability to win a general election. As we noted above, the electoral strategy of the main right wing party in both the US and UK was to capture the left wing socially conservative voter. UKIP threatened to undercut that strategy by winning those voters themselves, along with socially conservative Tory voters.


Thus any Brexit settlement that could have been credibly described by Farage as not a true Brexit would have kept the UKIP threat alive. May and most of the Conservative party understood that, which is one of the reasons why she tried so hard to reach an accommodation with the ERG group. (Another with that she hated the idea of potentially splitting the party.) So any soft Brexit deal was an existential threat to the Conservatives retaining power.


Many people might see the EU referendum's narrow result as a turning point, but again I’m not so sure. A close defeat would not have shut Brexiters up, but encouraged them. Every new development in the EU would become an excuse to ask the question again. Could a Conservative Prime Minister refuse another referendum? To answer that we need to look at another possible turning point.


Is this all Cameron’s fault for allowing an EU referendum in the first place? Suppose he had stood firm in 2013, and said there would be no EU referendum. Partly because he had put in place immigration targets that he had no intention of sacrificing the economy to hit, UKIP’s strength would have grown, and his 2015 general election victory would have been put in doubt. It may be a contradiction in terms to suggest a neoliberal PM would stand by principle even though it could cost them power: the last Conservative PM who did that was Edward Heath, which was one reason I talked about Enoch Powell in the earlier post. Cameron could have avoided setting the rules of the referendum in such a favourable way to Brexit, but then we go back to what would have happened if Brexit had narrowly been defeated.


Austerity


I have long thought a more credible candidate for a turning point was 2008-10, the period between where the idea of austerity was born in the mind of George Osborne to when it began to be implemented by him. Austerity is important because it laid a good deal of the ground work for UKIP and Brexit. After austerity, immigration could be blamed for declining access to public services. It delayed and dampened the recovery from the 2009 recession, which intensified the feeling among many that life was getting worse and looking for something to blame.


I still don’t know whether in 2008 Osborne developed the idea of austerity because it was a way of shrinking the state, or because he guessed it would be a good election tactic, and whether he was ignorant of the macroeconomic damage that policy would do. Probably all three were true. Yet for 2008 to be a turning point you have to believe that a Conservative Shadow Chancellor, seeing the opportunity to win the next election and shrink the state at the same time, would forsake that opportunity.


A more credible candidate for turning point are some key individuals that made austerity a vote winner. While the Treasury traditionally tries to control spending, it should have known that basic macroeconomic theory and past UK experience says you don’t cut during a recovery, and especially not when interest rates are at the lower bound. Crucially, it persuaded Darling that austerity should begin when the recovery began, which gave a green light to both Osborne and mediamacro. The same applies to Mervyn King. Both of them persuaded the Liberal Democrats to drop their manifesto plans and endorse Osborne’s by telling the lie that markets were about to panic.


Both were necessary but not sufficient to stop austerity being a vote winner. The third group of “guilty men” were the political commentators in the broadcast media who ignored basic macroeconomics, and their economic correspondents who should have known better but kept quiet. As Mike Berry writes


“However as the analysis [shows] in 2009 when the deficit became a major political issue there were no sources - outside of Labour - who were given space to put the Keynesian view in comparison to a range of sources who put the case for a faster pace of fiscal consolidation.”


To justify this period being a turning point you have to believe the following. After the failure of Osborne’s focus on the deficit in 2010, Gordon Brown retained power and presided over a normal recovery from the 2009 recession. By the time fiscal consolidation began in 2013, real wages were already increasing and investment growth was strong. Interest rates had risen with the recovery, and so could be cut to soften the macroeconomic impact of (more modest) austerity. The Conservative Prime Minister elected in 2015 did promise an EU referendum in the following term, but by 2022 when it that referendum came immigration was no longer such a major issue and, despite the support of some of the Tory press, the Leave side was unable to get close to 40% of the vote. After that, voters lost interest in the issue and in the politicians that promoted Brexit.


I don’t know if I believe that, but I would note that far right wing populism often does best when economic hard times persist (e.g. de Bromhead, Eichengreen and O'Rourke generally and more particularly Galofré-Vilà et al who look at the impact of austerity in 1930s Germany). And for those who think support for the far right can only increase, see Germanyand Austriatoday, where the far right is in retreat (odd this is hardly reported in the press).


If austerity was a turning point, then those who could have done something to avoid our slide to autocratic and incompetent plutocracy were not the politicians, but public figures who should have followed the science but instead decided to sell snake oil to the UK public.






 

Simon Wren-lewis
Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

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