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This book chronicles the catastrophe of the capitalism of the last 30 years. It is the story of what happened when what Stewart Lansley terms the ‘managed capitalism’ of the post-war period was replaced by the ideology of free-market capitalism espoused by Margaret Thatcher and Ronald Reagan and continued by New Labour. The theory was that self‑regulating free markets and the pursuit of profit would deliver economic prosperity for all. This book shows what a disaster this has been.
I use the word ‘story’ because the book is not an argument, not a point of view – it records what actually happened.
Milton Friedman really did say that the basis of a free society is companies making as much money for their shareholders as possible. Thatcher adviser Brian Griffiths really did say inequality would ‘achieve greater prosperity for all’.
And it was nonsense. Economic growth has slowed – just over 2 per cent per annum between 1980 and 2009 in the UK, compared with 3 per cent between 1950 and 1973. Productivity growth is lower and real wages have fallen for the vast majority of the population. Wages now account for 45 per cent of GDP compared with 60 per cent in 1979.
While the majority have got poorer, the rich have got richer. In the US, for example, in 1976 the top 1 per cent of the population accounted for 8.6 per cent of income; today it is over 23 per cent. The trend has been the same in the UK and even though it has not been as marked, it has ensured that the UK has moved from one of the most equal societies to one of the most unequal.
In other words, free-market capitalism does not work – it has not delivered on its promise. Whole industries have been sacrificed in the pursuit of ‘shareholder value’ – free‑market capitalism’s corporate creed. Lansley reminds us of the destruction of two of Britain’s successful businesses – Marconi and ICI – in a period in which finance capital was allowed to rule.
But it is even worse than that. As Lansley shows, free‑market capitalism creates instability and economic crises. Indeed, it is the root cause of the 2007/08 crisis.
As the rich got richer, their bank accounts bulged and there were ready customers to borrow this money – the majority of the population, whose living standards were falling. In the words of the American economist Louis Hyman in The Flaw, a Dartmouth Films documentary about the financial crash: ‘Whilst the rich weren’t willing to pay more wages, they were willing to lend them the money.’ Of course the mechanism by which this takes place is complex, making money for the many financial intermediaries – but the key dynamic is inescapable: money in the hands of wage earners, who need it, will be more productively spent than money in the hands of the rich, who don’t need it.
What is striking about this insight is that it is now widely accepted. The IMF thinks that wages’ share of GDP should rise, stating that the increase in inequality ‘is the most serious challenge facing the world’; the Bank of England thinks the banking sector is too large. And hardly an economist disagrees.
Despite this, nothing much has changed since the crisis, and Lansley’s got the facts – productivity up, profits up, wages down, inequality on the rise. Governments might have saved us from a second depression but they have done nothing to solve the underlying problems of current-day capitalism.
Lansley’s solution is to increase taxes (including an international crackdown on tax avoidance), weaken shareholder power through a ‘new contract’ with labour that introduces ‘flexicurity’ to the labour market, and rebalance the economy from finance to productive industries through taxation, regulation and the establishment of a national investment bank committed to social entrepreneurship and building a green infrastructure.
There is not much to disagree with in this programme. Indeed, Lansley typically manages to find support from unlikely quarters. The question is one of implementation: how is this to be made a part of the political debate and then adopted by a government committed to a decidedly ‘unmanaged’ capitalism?
The period of managed capitalism described in the book is one in which there was also progressive taxation and an inclusive welfare state. Both these and the idea of ‘capitalism controlled’ were the products of a powerful social movement: organised labour.
Yet, as Lansley recounts, this has also been virtually demolished in the past 30 years – a quarter of the labour force is unionised in the UK today, compared with half in 1979. For a number of reasons it is not possible (nor desirable) to re-create the union movement of the 1950s and 1960s but, as this book shows, there is a pressing need to create the 21st-century equivalent.
Crammed with data and evidence, with this book in your hand you never need go into an argument unarmed.