A better future? No wonder capitalism is distrusted
Post-cold war politics shifted towards the right, and ordinary people were forced to suffer. Mainstream parties need to learn what went wrong
History tells us the first cold war lasted from 1945 until 1990, and was won by the west. Capitalism triumphed over communism, freedom over tyranny. The early 1990s witnessed a victory roll for markets: economic shock treatment was administered to the former Soviet Union and its satellites; a global free trade deal was wrapped up; and parties of the left got with the programme. They stopped talking about socialism and embraced the need for greater competition, efficiency and labour market flexibility.
The centre of gravity of politics shifted. Before the collapse of the Soviet Union, the middle ground in the west was halfway between full-blown communism at one extreme, full-blown capitalism at the other. From the late 19th century onwards, the fear that the working classes would be seduced by Marxism prompted parties of both left and right to introduce reforms intended to knock some of the rough edges off capitalism.
There were plenty more concessions after the second world war. America’s Marshall plan was not just philanthropy. It was also the result of fear of communism and a feeling that, if capitalism couldn’t deliver for ordinary people, they had somewhere else to go. This anxiety dwindled as it became clear the Soviet economy worked a lot better when the need was to provide tanks and aircraft than it did to produce consumer goods. The end of the cold war removed the threat of an alternative ideology altogether. So the new middle ground – the third way – moved closer to an undiluted form of capitalism.
To take just one obvious example, the economic strategy being proposed at present by John McDonnell, Britain’s shadow chancellor – higher personal and corporate taxes, state ownership of the public utilities and the railways, a national investment bank – would have been firmly in the social democratic mainstream when the cold war was at its height. Now it is seen as so extreme that Labour dissidents are – in another echo of the past – toying with the idea of forming a new centrist party.
In the new post-cold war politics, parties that once believed their job was to make capitalism work for voters now believed their task was to make voters fit for capitalism. State intervention did not cease, it merely took a different form. Governments might have believed they could do nothing to prevent communities wiped out by deindustrialisation and were no longer to guarantee full employment, so they used welfare reform to get the unemployed to take low-paid jobs and told the poor they needed to smoke less, drink less and eat more healthily. State control over people replaced state control over the economy, and it didn’t really matter whether the voters liked the tough love or not, because there was nowhere else to go. The austerity policies of the past decade saw the full flowering of the new politics. Those responsible for the biggest financial crisis since the second world war went unpunished; those who were innocent felt the full force of deficit-reduction programmes. There was nothing like Marshall aid for Greece when experiencing a 30% fall in GDP.
The decision to embrace the discipline of the global market has proved disastrous for the parties of the centre-left
It is now almost three decades since the cold war ended, and few hanker for a return to the days when the iron curtain divided Europe. Yet the promises made in the early 1990s have not been fulfilled. Liberalising markets did not lead to economic perfection; instead the orgy of speculation unleashed led to the financial crisis of 2008. Living standards have continued to rise in the west, but more slowly than they once did. Productivity growth has stalled. In the UK, personal debt levels are not much lower than they were before the crash.
The country that has done best in the post-cold war era – China – has done so with a version of the old middle way. Strong growth has meant a great fall in poverty rates, but movements of capital have been regulated, trade barriers are higher than in the US or Europe, and the state has kept ownership of large chunks of industry. China is more market-friendly, but only up to a point.
The decision to embrace the discipline of the global marketplace was disastrous for centre-left parties. They did well enough in the late 1990s and early 2000s, when cheap goods flooded in from China, but were bereft of ideas when the global economy hit the wall in 2008. Where there would once have been a plan to re-regulate capitalism there was instead an intellectual vacuum.
There are some obvious lessons to be drawn. The first is that mainstream parties need to come up with policies that do things for people rather than do things to people. The record shows that the managed capitalism of the cold war delivered better results than the unmanaged capitalism since.
The second lesson is that voters don’t buy the idea that global capitalism is a force of nature that cannot be tamed. That’s why Donald Trump’s proposed tariffs on Chinese imports and McDonnell’s plan to nationalise the utility companies are proving popular. People want now what they have always wanted: a job, decent pay, a pension, a roof over their heads and a sense that their children will be better off than they are. They can’t understand why the global economy can’t deliver today what nation states could deliver half a century ago.
There is one final lesson. If mainstream parties don’t come up with the answers, the evidence is that voters will look elsewhere for solutions. The rise of populism explodes the myth that they have nowhere else to go.