When historians look back at the possibly very brief prime ministership of Liz Truss, who seems unlikely to make it to the end of the week, they’ll try to understand it in terms of the weird decline of the Tory Party and its complex relationship with neoliberal economic thinking.
That’s not to suggest some recognition shouldn’t be given to the spectacular political flaws of Truss and Kwasi Kwarteng — remember him? — summoned back from Washington on Friday to be offered as a sacrifice to save his prime minister.
But Truss’ determination to pursue a classic program of neoliberalism — tax cuts for the rich, a halt to plans to increase corporate tax, both now ditched — was wrecked with overwhelming force by the gods of neoliberalism: the markets.
For decades, we’ve been told “left-wing” economic policies of progressive parties could only ever be implemented if they gained the approval of financial markets. It turns out the same logic applies to attempts to implement an agenda straight from the pages of Hayek.
The Tories have had a complicated relationship with neoliberalism in recent years. Brexit marked an assertion of nativist sentiment against free markets and free movement of people, the very basics of neoliberal economic thought. Boris Johnson, ideologically incoherent and uninterested in doing the work of governing, could be almost aggressively anti-neoliberal. Under the rubric of “levelling up”, he backed government interventionism (mainly in the form of pork-barrelling targeted seats, but at a massive scale, and deployed well enough to help win a landslide in 2019), opposed migration as a solution to labour shortages and ran a mammoth budget deficit.
Truss — and this is the reason she defeated Rishi Sunak in the Tory Party members’ ballot to become PM — was something of a return to form, offering provincial Tories the promise of big income tax cuts as part of a broader “growth” agenda of tax cuts and deregulation. Having been a Remain supporter, she also wanted to boost migration to deal with labour shortages.
Financial markets, however, made it clear her tax package was completely unacceptable, sending gilts soaring, and plunging the UK-defined benefit pension system into a major crisis from which it has yet to fully escape — not to mention pushing mortgage and business lending rates up.
With the Bank of England insisting it wasn’t going to keep buying gilts beyond Friday, something had to give. Kwarteng, Truss’ close ideological ally, was dumped for the much-mispronounced Jeremy Hunt, who is now talking about dumping more parts of the tax package and spending cuts.
The bigger issue is how long till Truss, who is notionally protected from being ousted for 12 months, is prevailed on to retire to the study at No. 10 with a Scotch and a revolver.
This is unlikely to have happened if it weren’t for Johnson, whose fiscal policy blew debt out to 100% of GDP, and whose sheer incompetence and lack of interest in government primed markets to mark his successor hard. Years of politicians like Trump, Johnson and a slew of pinchbeck impersonators around the world have sharpened financial markets’ sense of the damage that elected politicians can do. Democracy is untidy, as Donald Rumsfeld once opined — too untidy for markets, often.
That leads us to a strange place: much of the pushback against neoliberalism in recent years has been not from its traditional critics on the left, but from the right. In particular, the anti-rationality, anti-truth sections of the populist right — led by the likes of Trump and Johnson — who exploited core elements of neoliberalism such as free movement of people and investment to portray themselves as nativist tribunes ready to defend their countries against sinister foreign forces. Many European countries are still making their own way through similar political shifts.
A similar — though by no means identical — process played out here under an ideologically incoherent Scott Morrison, who permanently expanded the size of government in Australia, though without working out how to pay for it. His replacements — like the post-Corbyn Labour Party, now the UK’s government in waiting — are market-friendly progressives, keen to rein in debt and expand immigration, and worried about any tax changes that will frighten international capital.
One can see a possible future in which progressives playing within the neoliberal rules become the natural parties of market-approved government, while the right remains conflicted between populism and neoliberal nostrums like low tax and high immigration. Where does that leave those who seek a society freed from the tyranny of financial markets?
As usual, great article Bernard.
A couple of quick observations.
The bitter and twisted cynic in me (and yes, even I will acknowledge that those characteristics do seem to be coming more and more to the fore with each passing day) tells me “let the neo-liberals run riot” with their insane economic ideology and zealotry. Because nothing is more sure than if you give these lunatics enough rope they will hang themselves (and people like me will be only too pleased to assist in that regard).
I am no economist, but I could see clearly from the outset 40 or so years ago just where this experiment in economic insanity and extremism would lead (perhaps I could see this because I am not an economist).
The only other comment that I would make is that it is a great mistake to see Labor Parties in Australia or England as being “from the left”, or as being “progressive”. Their role (as an old communist comrade said to me decades ago, is to make the capitalist system work better. This is of course, tantamount to rearranging the deck chairs on the Titanic.
That’s because the life boats had not been used so they sold them for scrap.
And privatised the life belts.
Yes this is true up to a point. I don’t think every liberalised reform over the last 40 years in Australia has been bad. Most have been. I agree with the analogy of the Labor Party. However despite all the faults, what happens when capitalism doesn’t work. No. It does not lead to the worker’s paradise. The Russian and Chinese revolutions have shown that. What it leads to is Fascism. This is what we are seeing now in a diluted form with Boris, Trump, Bolsinaro from Brazil, other countries of South America which traditionally have a penchant for Fascism, military rule, autocracy and dictatorship, the Philippines, and now much of Europe. The working classes have abandoned the Left in large part because the Left have abandoned the workers. Immigration hasn’t helped and has confused the issue to a great extent but how does this explain the rise of Fascism in places like Philippines and Brazil and the existence of fascist dictatorships, including Russia’s and China’s (their’s is a fascism too) and Islamic Fascist regimes in the Middle East and southeast Asia (Indonesia)? In places where there is little immigration, little opportunity for so-called scape-goating and marginalisation and little impact on labour market operations? In fact these places have been places of emigration (labour export) not places people would willingly want to flock to.
Where capital can’t resolve its problems, its contradictions, its anomalies, the result is Nationalism of a sort which often leads into Fascism. Even where business interests can’t profit, they contract their problems out to the State to solve and the State becomes a vested interest, an interested partner in the alliance of Business or Capital if you like and Government or the State. Regardless if this works clumsily or fails miserably as it always does (Italy and Spain are perfect examples) or tragically on a grand scale like Nazi Germany.
This is what happens. Government provides economically for and serves the interests of businesses that would otherwise fail and business is in hock to the Government for their support. Either way the result is sub-optimal. Dictatorship possibly. It is all well to be smart-arsed and say you look forward to the day when neo-liberalism fails but what is it you are looking forward to? Military dictatorship? Mass unemployment? Because you’re old and think you’re immune from consequence? I wish I had that confidence but I worry about my children and grand-children.
I believe that’s not the sole reason MG, the traditional working class has largely disappeared with manufacturing offshore, mechanisation and like. Decades of government hostility to Trade Unions since The Accord has left them ineffectual, and tradies bought the blokey aspirational ute memes from The Lying Rodent and The Lying Clapper.
“… an agenda straight from the pages of Hayek.” Srsly? Hayek advocated balanced budgets & liked the EU; Truss proposed unfunded deficits to cover for the failures of Brexit. Hayek wouldn’t have been seen dead with these clowns.
And Hayek is wrong; we need a return to Keynesian deficit-spending {failing direct debt-free money creation by central banks, when this doesn’t cause inflation).
Hayek may have approved of the EEC (perforce, Continental strife & war being bad for business) but abhorred the EU as it became the antithesis of his fantasy of a ‘free market’ – everything being regulated centrally.
“much-mispronounced Jeremy Hunt”
Why oh why would Crikey feel the need to include this highly offensive way of speaking about a reproductive and sexual organ belonging to women? That some people seek to degrade others generally, or Hunt in particular, with the “C” word is irrelevant to this article.
This isn’t the school yard, locker room, board room or Parliament House; it’s a newsletter that all kinds of people pay good money to read, and we should all be able to expect that you offer us a basic level of respect and dignity. GROW UP Crikey!!
A bad habit left over from the time of our totally unmissed and unlamented “Health” Minister, the gHunt?
Whole studies could be dedicated to why this particular word carries so much power…I personally deeply respect the organ in question, but still resort to misuing it regularly when I get angry enough..!!
Miriam Margolyes is a lady that I love and respect, but even she becomes animated around Mr Hunt and his cronies. and deploys the word herself with considerable venom…
Our “market friendly” ALP look pretty poverty-hostile from this distance.
No increase to job keeper, wage suppressing immigration on steroids and an apparent determination not to tax powerful vested interests (looking at you fossil fuel) all point to business as usual-albeit with friendlier sound bites.
Really hoping for the greens and the teals to push back against this hostility to youth and/or poverty.
And no, merely opposing the stage 3 tax cuts won’t cut it.
As for Albo and co the bar is being set astronomically low: “we’re not as bad as the last mob”.
Sweet Jesus.
The poms are now in more trouble than before. One of the results of Brexit eas to weaken the businees case for the finance industry to stay in the UK. When the UK was in the EU it was attractive as an english speaking entry for the Angloshere into the EU. The finance industry was about the only thing the poms had left after 40 odd years of Thatcherism. The tax cuts for the rich were a bribe to keep the wealthy finance players in the UK. Now they are gone. Expect the departure of the industry, which has been underway since 2016, to continue and the UK to disappear into banana republic status. Dublin will take over as the english speaking entry into the EU but they wont be the only beneficiaries. New York, Bonn, Brussels will also do well.
Can’t wait. Poverty for poms after centuries of killing and thieving. They are the flip side of the coin to Hitler.