“Although the crash saw the collapse of market fundamentalism, it also saw the collapse of tax renevues.” © Joe D

Since the financial crash of 2008, centre-left parties across the developed world have been wrestling with the question: how do we do social democracy when there’s less money around?

Of course both right and left have experienced philosophical discomfort since the crash of 2008. For the right, the catastrophic failure of global financial markets destroyed the certainties of market fundamentalism that had built up since the late 1970s. It turned out that markets are fragile things, needing care and attention, and the rules, norms and behaviour on which they depend to work in the interests of all suffered from decades of neglect.

The divisive social consequences of market fundamentalism had already been revealed before 2008. What the crash did was destroy this view of markets on its own terms: as an engine of efficiency, stability and prosperity. The right responded cleverly to this legitimacy crisis by trying to rewrite the history of the crash as soon as it happened as a history of state failure, not market failure. The rewriting continues. I’m sure we’ll see a lot of it in the Conservative Party’s election campaign.

For the left, the challenge was more surprising but no less profound. Because although the crash saw the collapse of market fundamentalism, it also saw the collapse of the tax revenues on which its commitment to social investment and redistribution depended. If 2008 exposed the Conservatives to an excessive reliance on market fundamentalism, it exposed Labour to an excessive reliance on revenue from a narrow slice of the tax base, in particular the City of London. Of course, tax-and-spend continues to be a crucial part of any programme of government (whatever the right tries to tell us). But the crash made it much more difficult for cash transfers and public spending to bear as much of the progressive load as was the case during the New Labour period. But the case for rethinking how Labour should govern in a social democratic way is not simply, or even primarily, based on fiscal necessity. It is a case based on seeing social democracy as fundamentally about building a better kind of economy, not just compensating for the side-effects of the economy that we have. This “supply-side” approach to social democracy is commonplace to centre-left parties across the developed world, but less familiar to the Labour tradition in the United Kingdom. With the exception of Harold Wilson’s crusade to modernise British industry in the “white heat” era of the mid-1960s, Labour’s economic policy has preferred the levers of tax-and-spend to those of economic restructuring.

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