Waves of Mutilation

16 June 2009 _ Ross McKibbin
Unless the opinion polls are very misleading Gordon Brown’s government seems electorally finished: undermined both by longer-term policy failures and, increasingly, by the short-term embarrassments to which terminally ill governments are subject. What went wrong is an important question, not only to the Labour Party itself but to European social democracy generally, since it was Labour which carried ‘third way’ politics furthest and fastest.

Great Auspices

At its beginning New Labour did represent an attempt to provide a new intellectual base for the Party in face of obvious social changes and its unexpected defeat in the 1992 elections. In particular, it was a reaction to the rapid numerical decline in trade union membership and the industrial working class, the Labour Party’s traditional social foundation. It also had to adjust to the apparent success (and permanence) of Thatcherite market economics. These were all legitimate considerations. Nor did it then involve an abandonment of all Labour’s history. New Labour remained committed to a well-funded public sector and to a broad egalitarianism. The Party, especially under Blair, was more ‘European’ than the Conservatives (which would not have been difficult) and more concerned with human rights and civil liberties. Unfortunately, it also adopted a version of ‘reality’ and electoral necessity which increasingly undermined what was left of its social democratic convictions. Thus it accepted as given the supremacy of market economics, of the existence of a fundamentally Thatcherite ‘aspirational’ middle class, whose interests were thought electorally crucial (especially in taxation), and a fundamentally Conservative and tabloid-press view of the British electorate more generally.

The Managerial Style of Politics

This led to a very unstable mix of policies which was increasingly to cause stress within the Labour Party itself, even among some of its most acquiescent members. Domestic and international financial circumstances allowed this regime to last longer than it deserved, but, as we know, it has now more or less collapsed and with it collapsed much of the Labour Party’s electoral strength. It was not, however, just the failing banks which led to this collapse. The whole New Labour ‘project’ began to disintegrate. Why did it? We should remember that New Labour is the creation of a very narrow professional political class whose life-experience is as a whole minimal. The project came not from the Party’s old right – which is now way to the left – but from the so-called ‘soft left’, the young men and women who were in Neil Kinnock’s circle. As a group they were, in fact, more interested in political processes than policies; and they admired above all those who acquired and used political power. They thus greatly admired Mrs Thatcher. As a result, first out of calculation then of belief, they adopted her definition of the state and its role: the repudiation of nationalisation and higher marginal rates of tax, and the view that the only thing governments should worry about is inflation and inflexible labour markets. They also fatally adopted the Tory account of what happened in the 1970s – that the ‘failure’ of the Wilson and Callaghan governments demonstrated the failure of traditional social democracy and that the future lay not in manufacturing but in banking and financial services.

Strategic Failure: The Crisis and New Labour

The weakness of all this was its unhistorical character: most of it was simply wrong. The Thatcherite view of Britain hardly ever represented ‘reality’. Though the right-wing account of the 1970s has some truth it is largely incorrect. Nationalisation is not invariably mistaken or unpopular; markets often do not work; ‘light-touch’ regulation never works; inflation is not the only danger societies face though Gordon Brown assumed that it was. The right-wing account also involved for Labour a major political problem. For all its preoccupation with political strategy and focus group opinion New Labour had no explanation of why the Conservative government was so overwhelmingly defeated in the elections of 1997. If the Conservative account was both correct and ideologically victorious (as New Labour believed) then 1997 should never have happened since the electorate could have no quarrel with it. Since Labour had no explanation it was, despite appearances, therefore largely disarmed when the crisis came. It had no social-democratic response to events which were not expected to happen. It would, for example, have been much better had the government nationalised the failing banks outright rather than coercing non-failing banks into buying them or, when it did acquire banks, leaving them in the hands of the existing banking elite. But the government was too frightened: that would have been ‘nationalisation’.

Growth and Debts

New Labour also repeated the fundamental error of the previous Conservative government (which had already resulted in at least one major recession) and that was to encourage unsustainable levels of personal debt and (the necessary corollary) rapid inflation of house prices. The great political weakness of neo-liberalism is that it depends on high and growing income inequality, which is, by and large, unacceptable to a democratic electorate. The ‘solution’ reached in both the United States and Britain was to encourage borrowing and the use of private housing as security for further borrowing. So was born the sub-prime mortgage and the unprecedented levels of personal debt which are the immediate origin of the present crisis. Much of this would never have happened had either country possessed a reasonably equal income distribution.

Privatising the Health and Education Sector

The second disintegrating influence follows from the first. That lay in the attempt to privatise the two major social services, health and education, via the creation of competitive quasi-markets whose effect would be to ‘drive up’ standards all around. In practice, quasi-markets have not worked since both services cannot be made market-competitive. Furthermore, the government has attempted to conceal public spending via the so-called ‘private finance initiative’, a way of privatising public spending. This also has not worked since PFI projects have to be made profitable – something achieved by, for instance, not having emergency wards in newly-built hospitals. The effect of this has been a hugely expanded bureaucracy at all levels, demoralised staffs and increasingly irritated ‘customers’. Labour has, therefore, never won the credit for the big increases in public expenditure for which it has been responsible and which the electorate knew to be necessary.

Lessons for Europe’s Social-Democrats

There are two lessons here for European social democracy generally, even if the British case is extreme. The first is that the attempts to create a form of neo-liberal social democracy will not succeed in the long-term since they involve two incompatible political traditions, traditions which work against each other destructively. The second is that the social-democratic compromises – an acceptance that western societies will remain predominantly capitalist but that market capitalism is both unstable and unfair without the compensating and regulating hand of the state – are flexible enough and more suited to modern European societies than the hollowed-out social democracy of New Labour and its imitators.