From the beginning to the end of Neo-Liberalism in Britain

The financial crash that brought the era of neo-liberalism to an end has now led to the formation of a novel coalition in Britain after 65 years of single-party government. But the balance of forces is very different from those that wracked Britain in the 1970s and opened the way to Margaret Thatcher.

The financial crash that brought the era of neo-liberalism to an end has now led to the formation of a novel coalition in Britain after 65 years of single-party government. This essay argues that it is important to understand what is special about the underlying economic and social crisis - and how the balance of forces is very different from those that wracked Britain in the 1970s and opened the way to Margaret Thatcher. 

Anthony Barnett argues in  The End of Thatcherism  that the election has brought an end to an entire era of British politics. He also notes, while cautioning on the gap between word and deed, that the Coalition promises in its agreement some more progressive policies than we saw under the New Labour governments from 1997 to 2010, and under the previous Thatcher – Major governments.  I agree that a very significant change has taken place, although it is unclear how progressive its overall outcome will be. I shall argue that the formation of a Conservative-Liberal Democrat coalition represents a bold political response to a crisis – the ‘credit crunch’ of 2008-9  and all that went with it – which is comparable in its severity to the crisis of the 1970s that brought Thatcherism into being.  I propose that we can only understand the politics of this situation, and the risks and opportunities it brings, if we understand the societal nature of the crises themselves.

My argument, initially set out on the day after the election for the Raymond Williams Foundation draws upon the analysis of political regimes and their conjunctures formulated  by the Italian Marxist Antonio Gramsci, in The Modern Prince,  following a method of analysis developed by Marx, particularly in his analysis of the class struggles of nineteenth century France. The relations and balance of powers between class formations – historical ‘blocs’ – is a  critical dimension of what happens politically, according to this way of thinking, though political decisions  also have significance, and in some contexts decisive significance. There are ‘conjunctures’, or in terms of modern complexity theory ‘tipping points’, when a previously stable social formation enter conditions of instability. These may create opportunities for decisive political action, leading to radical changes in a social system. Classically, these are moments in which revolutions, or counter-revolutions, occur  - 1789, 1933, 1917, or the overthrow of Salvador Allende  in Chile in  1973.

These conjunctures have their milder equivalents in democratic societies, occurring at moments when systems previously in a state of relative equilibrium or stability become unstable and enter periods of crisis.  One such crisis occurred in the 1970s, as the ‘welfare settlement’ which had underpinned broadly consensual politics in Britain after 1945, exploded in industrial and other conflicts. This political moment, perceived as threatening to the dominant order,  was seized by Margaret Thatcher in Britain, and by Ronald Reagan in America, and they initiated a new era which we have come to think of as that of the new right, of  neo-conservatism, or neo-liberalism.  I suggest that the financial crisis of 2008 to the present is another such conjuncture, and has similarly  given rise to the opportunity, and necessity, for  radical changes. 

The two crises compared

1The crisis of the seventies

In a recent article Reflections on the Present  I argued that these two crises have  a largely  different character.  The crisis of the 1970s represented the expiry and collapse of the post-war welfare settlement, through pressure of its own  contradictions.  I referred to the analysis of Stuart Hall’s  Policing the Crisis which charted the  emerging disorder and tension in Britain and in other western societies from the late 1960s. This developed as class conflicts grew in their intensity, expressed both by the demands of trade unions  in the  production system, and by the pressure for increased welfare expenditures. Other pressures were added to these, in the emergence of generational conflict (the student revolts of 1968, and the emergence of a teenage culture subversive of adult authority), feminism, and ethnic claims and discontents,  not least the Civil Rights movement in the United States. Many of these forces had come together in the mobilisation against the Vietnam War. 

The effect of these pressures was to bring about exceptionally high levels of inflation and social unrest. (The inflation was partly the outcome of   the rise in raw materials and petroleum prices following the ‘excessive’ demands brought about by the American commitments in Vietnam.)  This was also a crisis of the ‘Fordist' mode of production, in the United States and the UK in particular.  That is to say, in conditions of full employment and welfare-minded governments, this system had led to real pressures on level of profit, and on the authority of capital to control the market system.  Britain’s ‘governability’ was called in question, with the electorate’s negative answer to Heath’s question, after the first miners’ strike of 1973, ‘who governs Britain?’   Not you, Mr Heath, the electorate said.

The election victory of Thatcher in 1979, and then of Reagan in 1980, brought an end to this welfare settlement.   Working class institutions were attacked, in trade union reforms. The ‘right to buy’ legislation dismantled the system of local authority housing which constituted one of the strongest ties between elected Labour authorities and its working class electorate. The privatisation of public utilities enforced a ‘profit’ imperative over norms of public service, and weakened the powers of de facto co-determination by trade unions of an important sector of the economy.  Large-scale unemployment, following the monetarist assault on inflation in the early 1980s, undermined the bargaining position and morale of labour, and wrecked entire industrial communities.  Rate-capping and the increased centralisation of government weakened democratic local government, and the power of the labour movement at a local level. The ‘big bang’ – the deregulation of the financial sector in 1986 - set free the financial sector to operate on a global basis, and to establish itself as the dominant growth sector of the British economy.  The free movement of capital enabled producers to escape the bargaining power of wage-earners in Britain, by relocating their activities to lower-wage economies elsewhere.

The consequences of this have been felt economically, in the relative and absolute weakening of the manufacturing sector following an over-valued pound sterling;  regionally, in the ascendancy of London and the south-east over the rest of Britain; and morally, in the culture of greed and growing inequality which has followed the rise of the financial sector. The fall of European Communism in 1989 was the moment of triumph of this counter-revolutionary transformation.  It seemed that now neo-liberalism ruled the world.  The several wars waged by the Americans with British support in the Middle East, and in the Balkans, reflected this self-confidence.  The Americans dreamed of ‘full spectrum dominance’. 

This  ‘conjuncture’, was drawn out over several years, as Policing the Crisis described.  The resolution of the crisis did not even come in 1979, in the election won by Mrs Thatcher after the ’winter of discontent’.  It was the 1983 election that firmly established the new neo-liberal order, and it was probably only the contingent event of the Falklands War (Anthony Barnett’s Iron Brittannia analysed this moment)  and Thatcher’s victory that won the Tories their decisive victory.  The most important radical steps of the Thatcher government were only taken after its second election victory. Indeed its agenda took time to emerge as the power of the government to shape its environment grew. The fact that the crisis of the 1970s had gone on for more than a decade before a clear resolution of it emerged is relevant to understanding our present  crisis.

When ‘New Labour’ was elected to government in 1997, not a great deal changed.   The name ‘New Labour’ signified an accommodation to the new marketised era, and to the priority to be given to ‘Middle Britain’ – those sections of the population who felt they had most to gain from a more individualised system, over the ‘working class by hand and by brain’ which Labour had wished to represent.   New Labour continued the public service reforms begun by the Conservatives under Kenneth Clarke and Kenneth Baker. The system of ‘new public management’ involved a combination of centralised control over the ‘targets’ which public agencies were required to achieve, audit and inspection regimes which would monitor compliance, and ‘internal markets’ whereby providing agencies could be obliged to compete with one another and behave  more like businesses.  Both trade unions and the influence of the professions  - e.g. teachers – were weakened in this system. 

Whereas the  state under Thatcher had been deployed to attack and weaken the collectivist alternatives to the market ethos, the state in the later years of the Tories, and under New Labour, took on a more positive and pro-active function, though still mainly in the service  of the market system. Support for the Americans’ military interventions in the Middle East, and for the ‘war on terror’ more generally, were consistent with Thatcherite attitudes, though redirecting Cold War antagonisms and anxieties towards a new and more phantasmic enemy.  The authoritarianism of New Labour in regard to civil liberties was in part an outcome of its militaristic foreign policy, and ensuing fears of terrorism. But  Labour also made efforts to advance the interests of the poor, and to enable a larger proportion of the population to benefit from the opportunities of prosperity.  Stuart Hall in 2003 described ‘New Labour’s ‘double shuffle’,  where a government committed to enforcing the interests of capital sought to justify its activities as beneficial to the  working class it sought to represent.  The ‘authoritarian populism’  [8], which Stuart Hall had attributed to Thatcherism in 1985, had morphed into the ‘corporate populism’  attributed by Anthony Barnett to New Labour in 2000.

2 The crisis of the present

Whereas the crisis of the 1970s was the outcome of conflict between social classes, the explosion of a negotiated, consensual social settlement, the crisis of the 2000s is instead the implosion of a social order which appeared to have no active internal enemies.  This crisis is the outcome of the contradictions of a regime in which capital has ruled with few ideological opponents internally, or, following the collapse of Communism, externally.  In this respect the crisis is reminiscent of the crisis of the 1920s and 1930s, having been triggered in the same way by a speculative boom and crash. Although the working class may continue to exist ‘objectively’ – as those dependent wholly on their labour – it has become much diminished as a ‘subjective’ entity  - it has become a class, in Marx’s terms, ‘in’ but not ‘for’ itself. [1]

This system, has failed through the instabilities of unregulated markets, the result of what happens when the powers of property and capital are unconstrained by relations of interdependency and reciprocity with other social forces, or by governments which represent their interests.  Andrew Gamble’s The Spectre at the Feast  maps this crisis.   Speculation in rising money-values became dissociated from the real production of assets.  (The housing market in Britain and the USA is the prime example of this).  Because the banks and other financial institutions are deemed vital to the functioning of the economy as a whole, it has not been thought possible to require this sector to bear the losses incurred by the collapse of credit [2]  - instead these losses are being imposed on the rest of the economy, through declining output and investment, falling incomes and employment, and through promised public spending cuts to ‘reduce the deficit’. [3]

The inequalities brought about the market regime, especially when governments do nothing to redress them through taxation, have also been a source of instability. The sub-prime crisis in the housing market, in the USA and in Britain, arose because poorer families lacked the incomes which could support their mortgages.  The banks lent money to these households regardless, hoping that rising asset values would diminish the burden of household debt. The implication of the crash is that unless effective demand (which means average income levels) is sustained across the whole society, the property market cannot be sustained. This is a crisis of under-consumption of the kind which Keynes wrote about in the 1930s.  

Although advocates of the free market attack regulation and redistribution, the fact is that there are severe economic costs to inequality, as well as the social costs so well described by Richard Wilkinson and Kate Pickett.  President Obama has now succeeded in addressing some of these problems in regard to health provision in the United States, where 15% of the population has lacked any form of health insurance. Although much of the health industry has resisted the reforms, the fact is that a more inclusive system offers benefits to them too, since it will bring a larger demand for health services.

Other dysfunctions of unregulated markets have also emerged, notably in the environmental crisis, brought about by carbon and other emissions and their effects in global warming. It is evident that the free market left to itself cannot limit this damage, if everyone is allowed to ‘externalise’ the costs of their activities, so that they do not themselves have to take account of them.

The current crisis of the Eurozone, in the near bankruptcy of Greece and perhaps of other peripheral states in the EU, is a result of similar structural contradictions.  A single European market and single European currency cannot function effectively without the presence of systems to ensure a measure of equality of economic capability across the zone.  A currency whose high value is established by the economic competitiveness of Germany, cannot serve the interests of less competitive economies like those of Greece, Spain and Portugal, unless the latter are enabled to compete, or compensated by transfer payments for their inability to do so. 

Germany recognised this situation in regard to East Germany after reunification. It took on the burden of investment in East Germany’s  ‘modernisation’   and required the rest of Europe to share this.  If Germany and other states do not recognise that a comparable commitment to a measure of equality is required to make the Eurozone function effectively, the Eurozone and perhaps the larger European Union will fail.  Merely demanding more budgetary discipline for Eurozone members, in return for bailout loans, will not meet this purpose.  Without such assistance, as George Irvin has recently pointed out,  it will come to be in the interests of economies like that of Greece to default on their debts, and return to the periodic devaluation of their own restored national currencies to maintain their competitiveness.  One again, more egalitarian policies, which seemed threatening to capital in the 1970s, have become necessary to its stability in the 2010s.

The outcome of the election, in a ‘hung parliament’ which a majority of the voters said they wanted, reflects the uncertainties of the conjuncture brought about by the implosion of the neo-liberal regime. In situations like this, when one stable order as broken down, but a new resolution of forces has not yet been achieved, prediction is difficult.  Gramsci pointed out that the ruling class, in such crises, tried its hardest to hold on to its power, making the minimum necessary adjustments to do so.  In the resistance of the banks to regulation, and in the obdurate opposition by the right in the USA to any reforms whatever, we can see this process in action.

How can the present crisis be resolved?

This is a crisis of under-regulated capitalism, the consequence not of subordinate class assertiveness and the tensions arising from it, as in the 1970s, but of the unconstrained power of property and capital. In another idiom, this is a crisis of market failure, not of non-market failure.

The solutions to this crisis which are called for therefore require a strengthening of the power and effectiveness of governments in regulating the financial system, and ensuring that it operates for the benefit of the entire economy, not as a gambling industry which is mainly parasitic on it.   It should be tempting to governments to replenish their coffers by imposing some measure of taxation upon the huge quantities of speculative finance which flow across the world.

It follows also that greater regard has to be paid to levels of inequality, both within nations and between them. This  is not only for reasons of political legitimacy – governments are discredited by the spectacle of mega-bonuses being paid to bankers while citizens are impoverished, made unemployed, and have their homes repossessed –  but also to maintain economic growth and stability through supporting demand in housing and other markets. 

Internationally, there is much to be rearranged in the economic relations between the newly industrialising and ‘first world’ economies, to ensure an adjustment of their relative economic powers.  It is clear that the economic arrangements of the European Union are also now unsustainable without substantial reform, and a stronger role for intergovernmental institutions and transfers.

Climate change is another issue whose seriousness is now widely recognised (compared with even ten years ago) and for which some international as well as national remedies are urgently required. 

The solution to all of these aspects of the crisis of the neo-liberal order requires a more active role for governments, and for intergovernmental action. These changes require that governments be more active in the regulation of capital flows and markets than was believed desirable in the neo-liberal era.  It was on this fundamental issue that Gordon Brown made his decisive call, during 2009. 

The political parties in Britain were initially disoriented by the crisis. Each responded on the hop to the new situation.  The Brown government introduced the 50% tax on higher incomes, the bank bonus tax, the bank bailout and take-overs, and a new priority for manufacturing investment  - all departures from their previous approach.  Because of the problems of governmental legitimacy brought about by the financial crisis, both the Lib Dems and the Tories have also sought to respond to public anger about inequality. The changes in tax liabilities for lower earners and the increase in capital gains tax, are initiative by the new Coalition with this purpose.  Both Lib Dems and Tories felt free to attack the bankers more forcefully than the government, though perhaps mainly because they were not at the time having to work with the City and the bond markets as the government. 

But the main point is the evident disarray, as all the parties scrambled to adapt to the new situation. My argument is that in the next period, a new consensus is likely to emerge in which the enhanced role of governments in all of the above dimensions will be acknowledged, by whoever is in power. Plainly some parties and factions will find this adjustment more acceptable than others. Reactionary adaptations to crises also take place, especially where a dominant order feels itself seriously threatened. It is this reaction from those who feel under threat which explains the rise of the nationalist and xenophobic far right in Europe, and of the Tea Party movement in the United States. 

Democracy and class relations

It might seem anachronistic to be returning to the language of class relations to explain the differences between two political moments like those of 1979 and 2010.  Don’t social classes belong to the past, some may think?  Wasn’t the main consequence both of Thatcherism and its New Labour successor to banish classes and class conflict from its earlier salient role in British politics?   Are we not in the era of post-class politics, even if the working class did make an appearance in the shadows of the 2010 election as the ‘core support’ whose loyalty Labour eventually mobilised to some degree?

I’ve argued above that the current crisis is certainly not the outcome, as was the crisis of 1970s, of intense conflict between contending class forces. There has been no such conflict. Instead, the financialised market system broke down from its own contradictions  - this crisis was an implosion, the bursting of a series of bubbles, not the explosion of the non-containable conflicts of the late 1960s and 1970s. 

But even in a period when the manifest consciousness of class interests, and their collective expression, has become weak, and largely written out of the political script, class has not vanished as a structuring principle in our society.  This is partly because deep objective differences in people’s economic situation  - wealth, income, employment, access to education, even health and longevity – remain embedded  lines of division. 

But also because the presence of political democracy itself establishes principles of entitlement which are distinct from those derived from the ownership of property, which are central to capitalism.  The claims of universal human rights, or to the right of all citizens to elect their governments, constitute claims to equality contrary to the unequal entitlements which follow from property- or share-ownership.  Democracy has always been a means of constraining the powers derived from ownership, whether of land or capital, in the name of equal citizenship.  It speaks in terms of a universal class of citizens, rather than for particular groups within a class-divided society, but that does not remove its innate challenge to the order of property-ownership. (Charles Lindblom has described these opposing principles in his Politics and Markets). 

Democratic governments find themselves both representing this principle of citizenship, and determining the space which capital and markets should occupy within their jurisdiction.  Governments can represent the owners of land and capital against the claims of their own citizens. Democratic processes can become unbalanced and subverted by the power of property - Lord Ashcroft’s role in funding the Tory election campaign, from his tax hide-away in Belize, and the influence of the Murdoch-owned media on political agendas are egregious examples of this. 

Much justified criticism of New Labour arises from that government’s misuse of the power of the state to enforce their chosen pact with a financialised market economy, restricting democracy and freedom in many spheres, for example the over-centralised control of local government and many public services, and an over-mighty  executive trampling over the powers of Parliament. (Even the expenses scandal may have been in part a by-product of this situation, MPs having been relegated to the position of bystanders where what they did counted for little).

The campaigns to establish more fully democratic institutions, such as openDemocracy has prominently supported, need not in themselves be a diversion from a politics which is concerned with economic and social justice, but can be an essential element of it.  This is because the demand that entitlements should be based on rights of citizenship, not ownership (except in so far as private ownership is sanctioned by democratic decisions and norms) in itself implies economic and social claims. It is a matter of political strategy to decide which particular agencies in the democratic system should make economic justice their main concern, and which ones should focus on demands for more democratic procedures.

The Conservative-Liberal Democrat Coalition

I agree with Anthony Barnett that the Coalition just formed represents a departure which is attempting to grapple in new ways with the economic crisis.  The project of establishing a coalition between the two parties for a period of five years imposes prospective constraints on the Conservatives which one had not anticipated that they would entertain.  However a complicated dance between the Coalition partners has just begun, which may after its honeymoon come to resemble a fight between two scorpions, warily circling round one another. 

Although it is clear that the local contingency of Tories and Labour having to bid against one another for a partnership with the Lib Dems must have played its part in the outcome  (did the Tories intend to make any concession on electoral reform?) what has happened has been shaped by more than  opportunism.  What Cameron has done in binding the Lib- Dems into a solid partnership is to reduce the influence on his government of the moral and market fundamentalists (not always the same people) on the right of his own party. Cameron had by no means defeated the traditionalists of his own party during his leadership, unlike the victory of Blair and Brown, preceded by the efforts of Kinnock, over the Labour left.   Was he merely therefore the public relations face of the true Conservatives, Thatcherism with a human face?  It now seems not, since his alliance with the Lib Dems, has given a direction to the government different from what would have happened if the Tories had won their own majority.

But the situation is neither stable nor predictable.  Will the Coalition last long enough to bring the electoral reform which is the crucial condition of survival for the Lib Dems? There will be many Conservatives who will strive  to ensure that it doesn’t.  Even if it does, won’t the Lib Dems become weaker, in relation to the larger coalition partner, as their moment of greatest leverage recedes into the past, so that they will become indistinguishable from the Tories, and be destroyed by the voters when the reckoning comes?  There are going to be difficult hands for the different parties and their factions to play.

What should the Labour Party do? Its traditionalists seem to believe it should aim to discredit the Lib Dems as quickly as possible, and achieve a return to oligarchic two-party government. If this strategy leads to an election before long, even with a Conservative victory, this would be worth the price paid, they may believe, since after all was not this said to be a good election to lose?  Their position is  symmetrical with that of traditionalist Conservatives.

An alternative goal is to work over time to divide the Lib Dems from their Conservative allies, by establishing common cause with them and their supporters on radical issues. This might re-create the basis for the ‘progressive alliance’ which the electoral arithmetic made impossible after the May election. John Cruddas has pointed out that relatively moderate Coalition policies could be helpful to Labour, if one considers how far it has had to retreat over recent years in the face of attacks from the right.  There could be benefit in pushing the Coalition to do what should be done, against and making it difficult for it do what should not be done. It can argue, for example, that major acts of political reform should be taken on the basis of all-party consensus, thus making mere gerrymandering reforms more difficult to impose.  

Some of Labour’s worst deeds (for example in the criminal justice and security systems) were done in fear of Tory attacks on their alleged weakness. If Labour can refrain attacking it from the right, the Coalition might do better than the previous government in those spheres. (It would be hard to do worse.)  Given that a few days ago Labour itself wished to be in alliance with the Lib Dems, it can hardly now say that everything the Lib Dems stands for is anathema. (This doesn’t mean that it won’t.)  This is a time when Labour has opportunity to reflect self-critically on  the failings that followed from its own complicity with  neo-liberal market orthodoxies, and can make its own adjustment to a changed situation, as it  belated began to do in its last months in office.

But these matters should not be decided by merely tactical considerations. A conjunctural analysis enables us to distinguish between progressive political evolutions, in the context of this ongoing crisis from a reactionary one.  The terms of a progressive evolution can be clarified, as the need for

(1)  A more active role for governments in regulating markets, and especially global financial markets

(2)  Constitutional reforms which enhance democratic processes and civil liberties, and create more representative and pluralist systems

(3)  Policies, which reduce inequalities, and give greater weight to social justice and social inclusion.

(4)  The enhancement of the capacities of international institutions, and especially the EU, to maintain economic stability and growth

(5)  Programmes to address the problems of climate change.

Developments of these kinds are made necessary by the implosion of the neo-liberal system in the current financial crisis, and are needed to construct a new post-neo-liberal phase of democratic capitalism. Such a  system will  have more conservative and more progressive pathways, and the choices between these will no doubt the main grounds of political conflict in Britain (and in other nations such as the USA) in the next few years.

The minimal goal needs to be the emergence of a post-neo-liberal regime, whose establishment is more important than the composition of a particular government. In fact the differences between parties within a particular epoch can be less significant than the differences between the positions held by all parties in different periods.  Retrospectively, we can see that the politics of Macmillan and Gaitskell, Wilson and Heath, and even Thatcher-Major and Blair-Brown represented the consensuses of their era, the shifts of the entire agenda between these epochs having been larger than party differences within them. 

For this reason, all is not lost because an election defeat has occurred. The crucial argument, as Gramsci said of such conjunctures, will be between the elements of the old order seeking to restore all that they can of the status quo, and those who grasp the needs and opportunities that the crisis has opened up.  We need a larger map to assess what is progressive and what is reactionary in this situation.  The Tory-Lib Dem coalition is by no means the worst imaginable outcome and it has positive as well as negative potentialities. 

Mike Rustin is Professor of Sociology at the University of East London.


[1] It is possible that the absence of a powerful  ‘left alternative’, following the collapse of Communism etc, now makes progressive adjustments easier in one  respect since they appear  less threatening, though there is also less organised pressure to bring them about. 

[2] Simon Jenkins has argued vociferously in The Guardian against the bank bailouts, saying instead that the neo-Keynesian remedy to deficiency of demand of increasing the purchasing power of ordinary citizens would be both more effective and more just than giving money to the banks. .

[3] I believe that some healthy scepticism is due regarding the scale and dangers of this deficit. Its significance is being exaggerated by those who in any case dislike high levels of public spending, and will be glad of excuse for attacking it. Furthermore, in so far as the deficit is the consequence of falling output and employment (lower tax returns and high social security payments) it will be responsive to a return to economic growth, and even to the resumption of a modest level of inflation. George Irvin has proposed for Compass [12]  some big-ticket reductions in public spending  which could  make a big impact with little social cost. 

About the author

Michael Rustin is Professor of Sociology at the University of East London, and a founding editor of Soundings.