Covid has forced a neoliberal retreat. But state intervention isn’t always progressive
Thirteen years after the financial crisis put the global economy on life support, neoliberal capitalism is facing an existential crisis. The Covid-19 pandemic has exposed the disastrous consequences of decades of privatisation, deregulation and outsourcing. In order to contain the economic fallout from the pandemic, western countries have ripped up the neoliberal playbook.
Market forces have been shunned in favour of regulatory controls and state intervention. Central banks have broken the ultimate economic taboo and are printing money to finance ballooning budget deficits. For the first time in decades, the direction of travel for corporate tax rates is up rather than down. Even the International Monetary Fund (IMF) has thrown its weight behind wealth taxes. As Guardian columnist Larry Elliott recently put it: “the era of small states, low taxes and balanced budgets suddenly looks to be over”. The question remaining is: what is replacing it? In the UK, a number of recent developments provide some clues.
The first relates to the dramatic return of state activism and the loss of faith in unfettered markets. This is not limited to Covid response measures, substantial though they have been. After decades of selling off public assets, the UK government has started to establish a new generation of state-owned economic agencies. These include the UK Infrastructure Bank (Ukib) and the Advanced Research and Invention Agency (Aria), both of which have been endowed with significant financial firepower. The British state has also become one of the largest venture capital investors in Europe through the Treasury’s Future Fund, which has taken substantial equity stakes in hundreds of British startups. Regional policy, long viewed with scepticism by free-market economists, has also made a comeback in the form of the “levelling up” agenda.
The rapid development of the Oxford/AstraZeneca vaccine has also heralded the return of planning and industrial policy. Although Boris Johnson attributed this success to “capitalism” and “greed”, the reality couldn’t be more different: 97% of the funding for the development of the vaccine came from the state or charitable trusts, while less than 2% came from private industry. The central finding of an independent report examining lessons from the UK’s vaccine experience was that “government played a key role in expediting every stage of the vaccine development process”. Meanwhile, the government’s decision to intervene in the sale of the chip designer Arm Holdings to US company Nvidia on national security grounds suggests that the UK’s “hands off” approach to foreign takeovers has been replaced by a more assertive stance.
Taken together, these developments indicate that neoliberalism is dying in Britain, for the time being at least. But those who have long dreamt of neoliberalism’s demise should think twice before popping the champagne. A more assertive state does not inherently lead to more progressive outcomes. Instead we must ask: in whose interest is the state intervening?
In the UK, the unprecedented levels of state support in the economy have been accompanied by what appears to be widespread cronyism and potentially corruption. Lucrative Covid contracts have been awarded to companies with personal and political connections to government ministers. As the Greensill and Dyson lobbying scandals show, it seems cronyism extends to the very highest level of government. Ministers have also been caught repeatedly interfering in major planning decisions on behalf of political allies and party donors. Sleaze is not new in British politics, but the scale and brazenness witnessed over the past year is unprecedented.
Meanwhile, questions remain about what the government’s new agencies will do, and whose interests they will promote. Ukib is being designed not to supplant private finance, but to “derisk” investments for private investors and underwrite private profits. The beneficiaries of the Future Fund are shrouded in secrecy, while Aria has been exempted from freedom of information laws that typically apply to all British public bodies. The new £4.8bn levelling up fund has been allocated across the country not on the basis of deprivation rates, but of political allegiance to the Conservative party.
In other words: the UK is seeing the emergence of a new political economy that is comfortable with the state’s role as “promoter, supervisor, and owner of capital”, provided that it serves vested interests and is shielded from democratic scrutiny.
The second new development is the rise of the surveillance economy. Even before Covid-19, concerns about big tech and surveillance capitalism were mounting, but the pandemic has accelerated the growth of the data economy in two key ways. It has shifted a vast amount of activity online, meaning people now have a much larger digital footprint than before. And it has led to the rise of new forms of medical and locational tracking, which creates a distinct set of new challenges.
With vaccines now being rolled out across the country, the UK government has started trialling the use of vaccine passports. The implications of this could be far-reaching, ranging from face-scanning in pubs to restrictions on travel, which would crack open new divides in an already splintered country. And with the NHS’s treasured datastore now in the hands of “special-ops” tech firm Palantir, experts worry that the tentacles of surveillance capitalism could soon be accessing our personal health data.
Surveillance has also increased in the workplace, particularly as the dividing line between work and home has become blurred during the pandemic. This includes growing use of remote monitoring software and even webcam surveillance to monitor the “productivity” of workers. With home working expected to become a permanent feature of British capitalism, there is a risk that Amazon-style surveillance of warehouse workers is rolled out across the economy at large.
The third and final development is a renewed emphasis on law and order, and an associated crackdown on democratic rights. Across the world, temporary draconian measures were introduced to control the spread of the virus. But the UK is seeking to go much further. Not content with banning protest during the pandemic, the government is using the public health crisis as cover to make many of these measures permanent through the police, crime, sentencing and courts bill.
The human rights organisation Liberty has described the bill as “an assault on basic civil liberties” that will “dangerously tip the balance of power in favour of the government”. As well as dramatically curtailing the right to protest in perpetuity, the bill creates new stop-and-search powers and criminalises trespass – measures that could licence state harassment, ramp up racial profiling and threaten the way of life of Gypsy and Traveller communities.
For economists who see their discipline as a “value-free” science that is separate from politics, this might be uncomfortable territory. After all, what does policing have to do with the economy? The true answer is “quite a lot”.
Capitalism is at root a legal system that is upheld by laws that are enforced with the threat of violence. These laws are never neutral: they reflect the prevailing power and class relations in society. Just as anti-trade union laws were required to enforce neoliberalism, a crackdown on civil liberties is necessary to sustain this new, more authoritarian variant of capitalism.
The UK is not alone in experiencing these shifts – similar forces are on the march across the globe. For progressives who have spent the past decade railing against austerity and free market orthodoxy, the challenge ahead is enormous. Not only is there a need to adjust to a world of crony state activism, there is an urgent need to defend democracy and civil liberties from a creeping new authoritarianism. Progressives can either adapt to this new normal, or we will be shaped by it.
Laurie Macfarlane is economics editor at openDemocracy and a fellow at the UCL Institute of Innovation and Public Purpose. He is co-author of Rethinking the Economics of Land and Housing