If recent politics were a football game, the score on the day of Liz Truss’s downfall would have been Welfare State and Public Services 2, Neoliberalism on Speed 0. Neoliberalism is likely to get a goal back with Sunak and public spending cuts, but the extraordinary story remains of how Welfare State took the lead.
The first goal was not the collapse of the Truss-Kwarteng “fiscal event”, but the event itself. A real plunge into neoliberalism of the kind that Truss had promised required an attack on the “big state”, with cuts in both taxes and spending. But despite all the bluster, she had had to pledge, even in her election campaign among Conservative party members, that public spending commitments would be maintained. As a result, the fiscal event was not really radical in neoliberal terms; just yet another instance of a government claiming it could maintain high public spending alongside low taxes through the simple but unsustainable expedient of high debt. The welfare state was just too popular to suffer a frontal assault. That was the first goal it scored.
The second was the extraordinary way that Conservative MPs and pundits lined up to support public services and decry regressive taxation changes. Of course, there remain many supporters of Margaret Thatcher’s and later George Osborne’s attempts to drive the state share of national expenditure back down to pre-war levels, and a new programme of austerity will become an excuse to launch us again down this path. But advocates of that programme are challenged in the contemporary Conservative party. The old Keynesian consensus is not dead after all, and the viability of the neoliberal programme that has dominated politics since the 1980s has been thrown into doubt.
In her “fiscal event” Truss did not, as she claimed, announce a reversal of recent economic orthodoxy, but an intensification of what had long been conventional wisdom. This broke the terms of compromise on which her party—which stands for the interest of the few but needs the votes of the many—depends.
Even among Conservative voters, public support for the welfare state is so high that attacks on it must proceed by circuitous routes. When associated with Boris Johnson, the tactic was called “cakeism”: simultaneously pursuing two contradictory aims in such a way that one is achieved by announcements only; the other, real result, happens by stealth.
It goes something like this: a policy announcement is made to trumpets and press conferences. The media reports it in bold, clear terms. The fact that the result is either nothing or the opposite of what was promised emerges only quietly and slowly, often dependent on the kind of investigative journalism that not many media organisations are willing to carry out.
For example, the government promised to build 40 hospitals. But where and when? How will we know when to conclude they won’t ever be built and were perhaps never intended to be? It announces its commitment to excellent public services, but sneaks out cuts disguised as “efficiency savings”. After more than 40 years of governments repeatedly saying they have been hunting down efficiency gains, where can any more come from? Perhaps reducing staff numbers can be labelled as efficiency gains: back-office staff could be made redundant by forcing frontline staff (teachers, doctors, police) to do their own administration at the expense of frontline work. This reality will only gradually emerge, quite disconnected from the promise of “no cuts”.
Another such formula, used by the hapless and short-lived chancellor Kwasi Kwarteng, is the claim that cutting a tax actually brings in more revenue; a startling announcement, more or less claiming that the magic money tree has been found. What was not announced was that this miracle could be performed only under certain circumstances. For example, if capital gains tax rates are made lower than those of income tax, many self-employed and managerial people would get their salaries relabelled as capital gains, meaning they would pay less income tax than before, but capital gains tax revenues would increase.
A further example that will surely survive into the Sunak government concerns investment zones—areas whose economies the government promises to stimulate by cutting taxes and regulations, including environmental standards. These zones would become playgrounds for a full neoliberal experiment that cannot be replicated for the whole country because resources must be shifted to the chosen locations at the expense of others. What sort of investment will this opportunity bring each zone, with deliberately diminished environmental quality? The policy’s creators clearly believed in the 19th-century adage of industrialisation that “where there’s muck there’s brass”. But the activities that bring the highest added value in the 21st century abhor muck; they gravitate to capital cities and other beautiful places that have benefitted from careful and expensive public planning, regulated development and environmental protection. How long before we discover that no new investment zones have rivalled these advantaged places in hosting advanced sectors?
The essential duplicity of cakeism was always going to be discovered, but its greatest deceit is the suggestion that a neoliberal policy agenda could meet the interests of all citizens.
There are at least two forms of neoliberalism: a pure, if naive type that stresses the role of markets; and an impure one that concentrates on rewarding wealthy individuals and large corporations, sometimes in spite of the market. It is the latter that Truss and her predecessors served up to us.
At the heart of pure neoliberalism is the idea of a free market governed by consumer choice. It makes some social sense for the principal goal of a firm to be the maximisation of profits—if companies can make those profits only by producing goods that satisfy customers. But that requires true markets, in which customers have more-or-less perfect knowledge of products and their alternatives. This criterion is hard to meet in modern economies where so many goods and services have complex scientific and technological content. A neoliberal government with the genuine intention of making markets work for consumers would therefore try to ensure that they were equipped with complete information about their consumption choices.
This is not what was envisaged by the ideology of Truss, Thérèse Coffey and others. During their short time in office, they planned to suppress government information programmes about efficient energy use, healthy diets and no doubt much more. If opposition to the welfare state is the first pillar of libertarian opposition to the “nanny state”—an odd term, given that 95 per cent of the population have never had a nanny—then the refusal to provide useful information is the second.
Political parties relate to voters exactly as commercial businesses relate to customers
This betrayal of pure neoliberalism by Truss and others is not a minor issue. It means that markets in many sectors of the economy are far from competitive, dominated by a small number of very large firms that lobby governments to look after their interests. This kind of behaviour breaks two assumptions of neoliberal theory: that markets need to encourage a high level of competition, and that politics and business should not mix, as they do in modern lobbying practices.
In such cases, if it is not feasible to break monopolistic corporations down, consumers must be safeguarded from the consequent inadequacy of markets through regulation. The Truss government was hostile to such regulation and embraced the power of business lobbies, particularly their entanglement with party donations. This sort of hypocrisy predated the Truss interlude and will outlive it.
Neoliberalism has been discredited, but for a while now we will have to concentrate on confronting the more immediate problem of a worst-of-all worlds: increasing taxes alongside public spending cuts.
If or when the normal service of political conflict is eventually resumed—including debates about low tax versus high public spending—supporters of the welfare state should be emboldened by the recent revelation of its resilience. Impure neoliberalism tried to destroy the welfare state and was rejected. But that boldness must still reckon with neoliberalism’s most seductive argument: that we all know better than government does how to spend our money, so we should keep more of it.
The idea that we all individually know better than the government how to spend “our” money is sometimes true, but sometimes not. We do not, as a mass of uncoordinated individuals, know better than the government how to stop the Russian invasion of Ukraine. We cannot individually spend our money to produce police forces or a national education system, or to combat global viruses. We certainly cannot individually save humanity, nature, or the planet from the damage of excessive use of carbon and other pollutants. But the folly of the claim does not conceal its beguiling flattery—and so its opponents need to be well-prepared with bold counterarguments or they will be caught out, as was the Labour Party temporarily after the fiscal event, promising to match the government’s plan to reduce the basic rate of income tax and thereby throwing its own budgetary balance plans into doubt.
The crucial danger of the argument that we individually know better than government how to spend money is that, in maintaining that the whole is less than the sum of its parts, we undermine democratic citizenship. If we all cease to orientate ourselves to the society around us and look just to ourselves, we become incapable of achieving major social tasks.
Of course, a citizen might believe that a smaller state would be preferable for economic reasons, but they should not believe it on the grounds that individuals always know better than the collective of which they are a part. The traditionally conservative slogan that “rights imply responsibilities” is one that contemporary Tories would do well to heed. Everything we have is the result of some collective action; if we own large wealth we have it because the law (a collective product) guarantees certain rights of property ownership and provides expensive enforcement services to ensure that we keep that property. If we have rights, we have responsibilities to the source of those rights. Conservatives are very likely to accept that postulate when it comes to the military or law and order, but less when constructive, life-enhancing or life-saving services are concerned.
Arguments in favour of collective action have become harder to make in recent decades. Thatcher so successfully turned voters’ attention to their own immediate concerns that when New Labour wanted to reawaken support for public services, it did so by individualising them: your school, your hospital, your police. As persuasive Hegelian logic it was brilliant. Thesis: welfare state collectivism; antithesis: neoliberal individualism; synthesis: welfare state individualism. It won support back for social policy and public services, but not for the concept of collective responsibilities.
And yet, 40 years of neoliberalism have not bred a selfish “me” generation: we are surrounded by major illustrations of voluntary action, including large formal and informal protest movements; young people care seriously about climate change and biodiversity; it has become a cliché that the Covid lockdowns showed the depths of resources of neighbourly care possessed by societies around the world. But there is a general disconnect between this rich civil society and political communication. For a brief moment, it seemed that the pandemic would turn the direction of public political discourse in a collective direction, but the moment passed without significant change.
Modern political parties relate to potential voters exactly as commercial businesses relate to potential customers; they use the same public relations firms and rely on the same language of advertising. The aim is to find policy products that voters can be persuaded to support, mainly based on things they are already known to like. But the consumption of goods and services is an entirely individual affair, and the language of advertising is not adept at alerting people to collective responsibilities. As a result, relations between parties and citizens have become gradually more estranged.
Voters will sometimes say, not “I vote Labour”, or “I vote Conservative”, but “I am Labour”, “I am Conservative”, implying an identity with that party, a relationship that runs much deeper than their bonds to the firms whose products they buy. Such identities once existed, at least in a rough way, formed around the sometimes ugly struggles between classes and religious faiths during the late 19th and early 20th centuries. This is the context in which most of the established parties we know today were born, in which most citizens are supposed to know which party stands for “people like them”. Having to come to terms with each other to provide workable governments, these parties generated the delicate balance -between conflict and consensus that produced postwar stability.
Paradoxically, that stability eventually undermined the strength of those rival identities on which the system depended. As time passed, the great conflicts were those of parents’ and then grandparents’ memories; their ability to shape political identities weakened. The more peaceful political climate did not renew them.
Party leaderships ceased to express the aspirations and sense of shared citizenship among large numbers of people. They became an isolated political class and their party memberships ceased to be microcosms of voters, as they tended to be constituted by those who still felt the loyalties of earlier decades. Detached from the society they sought to govern, political leaders had to find new ways of learning what voters cared about, and discovered commercial PR firms that knew how to discern consumers’ likely preferences. Dialogues about citizenship and the shared needs of society, or of classes within society, shaded into individualised sales talk.
Neoliberal economic policies fitted well with this shift away from collective orientation in politics, but they were not introduced because of it. They were the product of the crisis of Keynesian economics in the inflationary period of the 1970s, which led governments of all colours to abandon the guarantee of full employment pursued since the years of postwar reconstruction.
During this period, groups of workers tried to protect themselves from inflation by engaging in competitive wage claims unsupported by productivity gains. This only made inflation worse. Governments responded by exercising strict control over the money supply, suppressing inflation by increasing unemployment. The entire neoliberal agenda followed, assisted by the decline in workers’ and unions’ power. This happened just as unemployment started to bite and as automation and globalisation reduced the proportion of the workforce engaged in manufacturing and mining, the main traditional strongholds of labour’s power.
In this new neoliberal way of thinking, the sole aim of an enterprise was to maximise profit. Governments taxed corporate income more leniently than income from labour. Publicly owned industries and some public services were privatised. The financial sector was gradually deregulated, enabling banks and other investors to take higher risks. Their earnings rose, and income inequalities grew.
In the US, the heartland of these ideas, “trickle down” failed to happen, and income inequalities reached levels normally associated with emerging economies. The welfare state was marginalised. Faced with stagnating incomes, American workers began to borrow heavily to sustain their consumption, re-mortgaging their homes and accumulating credit card debt. The financial sector, liberated from rules that once restrained risk-taking, happily and heedlessly purchased this insecure debt—activity that became even more rapid as the sector grew flush with funds when wealthy people in China, Russia and other parts of the world began to join the global capitalist system after 1990.
The financial crisis of 2008 emerged from this heady mix of poor-quality debt, deregulated financial markets and ever increasing funds but did not, as some observers expected, bring the entire neoliberal venture to a close. The crisis had drastically weakened the banks, and the only means that policymakers knew to get the show back on the road was to relieve them of much of the damage they had inflicted on themselves and everyone else. Some precautionary rules were reimposed to restrain bankers’ risk-taking, but in general indebted individuals and countries had to bear the brunt. Severe austerity regimes were imposed on welfare states—sometimes by governments that were reluctant, sometimes by those grateful for a chance to beat back the “big state”. Neoliberalism received a second wind.
This is the world that we have inherited: an only half-reformed financial system; a democratic politics that finds it increasingly difficult to address voters as adults who must think about their collective as well as their individual selves; welfare states that have been ravaged but stubbornly survive. If Truss had a mission to reform this unsatisfactory state of affairs, it was to move in one direction: to undo financial regulation, turn voters increasingly in on themselves and weaken further the welfare state and other public services.
It is the last of these, public services, that in the end she was unable to tackle head on, despite the individualistic rhetoric available to her. This is the most lasting lesson of Truss’s brief time in office—and it fits with that evidence of widespread public concern for our other shared needs.
Most people—even those who have a vested interest in fossil fuel production and polluting industry—have become aware of the threat to our climate. It is the ultimate ineluctably collective cause. For the market economy, the pandemic and the return of war to Europe were exogenous shocks for which, without governmental coordination, it has no remedy. The very rich can shelter from many of the ills that afflict society in general, including pandemics, by remaining in gated communities, sealed limousines and exclusive resorts. But even they cannot escape climate change.
It is notable that the main neoliberal response to the climate crisis is to deny its existence or decry attempts to confront it as the actions of an “anti-growth coalition”. While it is true that green activists reasonably insist that growth should be compatible with the climate, there is really only one anti-growth movement in the UK today: Brexit.
The vote for Brexit was explicitly a vote to have a smaller economy, with the smaller workforce that necessarily followed the restrictions on European immigration and reduced access to a trading zone so large and nearby that it could never be replaced by trade deals in other parts of the world. The 2016 version of Truss fully understood that. But she had to shed that understanding because it hindered her ascent up the greasy pole to Number 10—and down it again—earning her the totally unwanted achievement of being the prime minister who tested neoliberal ideology to its near destruction, and in just six weeks.
In the UK Truss sought to govern, unlike after 2008, the tectonic plates of policymaking now seem to be moving. There is genuine awareness of our shared needs; the welfare state still survives, popular and appreciated. It was the fundamental error of those around Truss that they noticed this only to the extent of drawing back from a frontal attack on social spending.
The neoliberal model is under extreme stress today in the United Kingdom. How much others will learn from our experience is a matter of whether they concentrate on the multiple local unforced errors of the Truss government, or on the bigger picture that hindered her actions. If they look to the latter, politicians from all parties should feel emboldened to talk the language of collective purpose.
