Two States - One Political Crisis

We tend to view events through the personalities of those involved.  Is George Osborne a bumbling economic illiterate or an evil genius?  Is Iain Duncan Smith a scrounger, a sadist or a full-blown psychopath?  Did Labour elect the wrong Miliband?

In truth, public personas are more often shaped by events and circumstances.  Remember how John Major was doomed by Guardian cartoonist Steve Bell’s portrayal of him as a grey wimp who wore his pants outside his trousers.  Despite being a tall (over six foot) and charismatic man, Major was unable to shake off this image.  Why?  Because he, and his hapless Chancellor had presided over economic crises against the backdrop of a Tory party divided upon itself over Europe.

Occasionally in times of profound crisis, history throws up the same personas to act out the same roles.  Leon Trotsky in his History of the Russian Revolution saw this in the persona of Charles I of England, Louis XVI of France and Nicholas II of Russia as each faced the collapse of their particular established order:

“The historic-psychological contrast… between the Romanovs and the Capets can, by the way, be aptly extended to the British royal pair of the epoch of the first revolution.  Charles I revealed fundamentally the same combination of traits with which memoirists and historians have endowed Louis XVI and Nicholas II.”

The passivity in the face of crisis; the political indecision; military failure; the desperate extraction of income from an increasingly impoverished people; the overbearing foreign wife; and the exalted courtiers giving flawed advice, were there on each occasion, playing their respective roles in leading the regime to the scaffold.

What are the chances of all of these actors being mystically reincarnated time and again to play out the same tragic comedy?  None whatsoever – as Trotsky went on to point out – it was the crisis of the regimes in question that brought forward the personas.  Even the foreign wives were simply a measure of the crises, as royal marriages were used in an attempt to cement friendly relations with stronger powers.  Charles I, Louis XVI and Nicholas II were no more grey impassive wimps than was John Major.  They had simply reached the point in the crises of their respective regimes at which any move they made could only hasten the collapse.  So they locked themselves behind the gates of their palaces and partied like there was no tomorrow… because, for them, there was no tomorrow.

It is in this light that I wish to draw attention to two recent articles by John Michael Greer - The Suicide of the American Left and The War Against Change – that highlight the staggeringly similar political decay in the USA and the UK.  In both articles we can easily substitute the UK for America; the Tories for the GOP; and New Labour for the Democrats.  This implies a crisis that goes much deeper than the individual actors who happen from time to time to take centre stage.

Below, I quote extensively from John Michael Greer's articles to reinforce this point.

Much of the political class in the USA and UK have tended to see 1989 (and the collapse of the Soviet Union) as the point when America emerged as the sole global superpower (Americans dislike the word “empire”).  However, as Immanuel Wallerstein has pointed out, the apex of US power came in 1945.  The real era of greatness for America came in the 1950s and 1960s - when the USA could still win wars and take time out to put men on the moon.  Recession and military defeat in the 1970s served notice that no hegemonic power remains at the top forever.  By 1989 the USA was already well into decline (but less so than its Soviet rival).  This decline is most obviously observed today in the USA’s (and its ever weaker UK ally's) inability to impose its will in its various wars and interventions in the Middle East, Asia and most recently Ukraine in the face of a resurgent Russia and a strong China.

The existential regime crisis for both the USA and the UK plays out in the politics of both states.  Like doomed emperors before them, the political class and their corporate backers have locked themselves in their palaces as they try to keep their party going.  They dare not make fundamental changes because any real change at this point will hasten the coming collapse of the system:

“For the last forty years, mind you, America [and the UK] has been moving steadily along an easily defined trajectory. We’ve moved step by step toward more political and economic inequality, more political corruption, more impoverishment for those outside the narrowing circles of wealth and privilege, more malign neglect toward the national infrastructure, and more environmental disruption, along with a steady decline in literacy and a rolling collapse in public health, among other grim trends.”

Collapse is assured anyway of course.  The US-centred global economy is nothing short of a giant Ponzi scheme in which there is now six times more paper “wealth” (in reality non-redeemable claims on future wealth) than there is real wealth to back it up.  As the world hits the limits to resource extraction on a finite planet, sooner or later an economy based on debt-fueled infinite growth must stop functioning.  The next banking collapse is no more than a couple of years away (maybe sooner).  And this time around the “too big to fail” banks will have become “too big to save”:

 “The political consensus in Washington DC [and Westminster] these days can best be characterized as an increasingly frantic attempt, using increasingly risky means, to maintain business as usual for the political class at a time when “business as usual” in any sense of that phrase is long past its pull date. This, in turn, is largely the product of the increasingly bleak corner into which past policies have backed this country, but it’s also in part the result of a massively important but mostly unrecognized turn of events: by and large, neither the contemporary US [and UK] political class nor anyone else with a significant presence in American [British] public life seems to be able to imagine a future that differs in any meaningful way from what we’ve got right now.”

In the political arena the traditional conservative parties (Republican/Tory) have become the radicals – pursuing any and every attack on their own people in an attempt to maintain the privilege of the elite:

“…the Republicans [and the Tories] decided that they’d never met a foreign entanglement or a government handout they didn’t like—unless, of course, the latter benefited the poor.  An ever more intrusive and metastatic bureaucratic state funneling trillions to corrupt corporate interests, an economic policy made up primarily of dishonest statistics and money-printing operations, and a monomaniacally interventionist foreign policy.”

As this plays out, the party of the left (Democrat/Labour) has morphed into the conservative party:

“Back when the two parties still stood for something, for example, Democrats in Congress  [Labour in Parliament] could be counted on to back organized labor and family farmers against their corporate adversaries and to fight attempts on the part of bankers to get back into the speculation business...

“Nowadays? The Democrats [and Labour] long ago threw their former core constituencies under the bus and ditched the Depression-era [post-1945] legislation that stopped kleptocratic bankers from running the economy into the ground…”

There is no longer an alternative vision of the future, merely an ominous warning about how bad things will get if the other party wins power.

“A movement that defines itself in purely negative terms, though, and attempts solely to prevent someone else’s agenda from being enacted rather than pursuing a concrete agenda of its own, suffers from another massive problem: the best such a movement can hope for is a continuation of the status quo, because the only choice it offers is the one between business as usual and something worse. That’s fine if most people are satisfied with the way things are, and are willing to fling themselves into the struggle for the sake of a set of political, economic, and social arrangements that they consider worth fighting for.”

Does this remind anyone of Ed Miliband’s risible election campaign?  Does this not explain why large sections of the working class defected to UKIP and the SNP? 

We even find similarities in the political personas that have arisen in both States.  The crop of sociopaths and misfits who have come forward as potential Republican presidents seem not dissimilar to the Tory contenders for David Cameron’s job once he has messed up the rashly promised EU renegotiation and referendum.  Is it just me or has anyone else noticed the similarities (not just the hair) between Boris Trump and Donald Johnson?

“…no matter how awful a president [prime minister] he’d be, the logic seems to run, at least he’d be different. When a nation reaches that degree of impatience with a status quo no one with access to power is willing to consider changing, an explosion is not far away.”

On the left too, the actors look similar.  For Hilary Clinton read Liz Kendall:

“It’s pretty much a foregone conclusion that she’ll lose this campaign the way she lost the 2008 race, and for the same reason: neither she nor her handlers seem to have noticed that she’s got to offer the American [British] people some reason to want to vote for her.”

What about Andy Burnham, Yvette Cooper and the now retired Chuka Umunna:

“I frankly doubt that the other candidates have a single noble motive for seeking office among them, but they have at least realized that they have to go through the motions of having convictions and pursuing policies they think are right. Clinton [Kendall] and her advisers apparently didn’t get that memo, and as a result, she’s not even going through the motions.”

Even Jeremy Corbyn – the surprise front-runner for the Labour leadership – finds a parallel in Senator Bernie Sanders:

“… what makes Sanders’[and Corbyn's] talking points stand out among those of his rivals is that he isn’t simply talking about maintaining the status quo; his proposals include steps that would restore a few of the elements of the welfare state that have been dismantled over the last four decades. That’s the extent of his radicalism—and of course it speaks reams about the state of the Democratic [Labour] Party more generally that so modest, even timid, a proposal is fielding shrieks of outrage from the political establishment just now.”

Structurally, the UK is in an even worse place than the USA.  Whereas the US Dollar still has some international traction as the nominal reserve currency – backed up by the facade of military power –the British pound is backed by nothing more than an increasingly insincere government promise that future taxpayers will somehow find the cash to pay back all of the loans that are currently keeping the UK economy above water.  In such circumstances, the doomed austerity policy is the only approach that the political elite can pursue that does not involve their giving up any of their own wealth and privilege.

Nor does the UK enjoy the USA's still massive (albeit rapidly depleting) mineral and energy resources.  The North Sea oil and gas fields peaked in 1999 and have been declining rapidly ever since.  What coal and metal reserves Britain might have enjoyed were largely consumed in the building, administering and losing of a global empire (and in fighting two ruinous world wars).  Indeed, the UK today even depends upon imported food and medical supplies to keep its people alive.  In the (very real and imminent) event of a currency crash, the UK will face the kind of humanitarian crisis that we tend to think of as affecting third world populations. 

In the face of this existential crisis, even Jeremy Corbyn/Bernie Sanders are wedded to the increasingly bankrupt 300-year-old economics of infinite growth on a finite planet.  And while the kind of reforms they are offering might ameliorate some of the worst effects of our economic decline, and may curb some of the worst excesses of the political/corporate elite, they are at best too little too late for a system whose fall is already upon us.

Corbyn - Historical Relic or Visionary?

The accusation that Labour leadership contender Jeremy Corbyn is trying to “turn the clocks back” serves to obscure much more than it explains.  In fact, take any time to dig beneath the headlines and we find that Corbyn has not argued for a return to the policies of the 1980s at all.  He did not, it turns out, call for the nationalisation of the means of production, distribution and exchange.  Rather, he made the case that some "natural monopolies" such as the railways and the energy companies should be operated on a not-for-profit basis.  He did not even stipulate that these utilities should be taken into state ownership – a sensible position given the ease with which neoliberal governments have been able to sell off state assets.  Similarly, while the tabloid headlines screamed out that Corbyn wanted to reinstate Clause 4 of the Labour Party constitution, it turned out that he had called for a fundamental rethinking of Labour’s purpose which would arrive at a modern equivalent of Clause 4.

In fact, it is very difficult to make the case that Corbyn is attempting to recreate the politics of a bygone age.  However, this allegation can be made of his opponents.  The New Labour dinosaurs – Alistair Campbell, Alan Johnson, Peter Hain, etc. – all claim that the road to electoral victory lies in recreating the glory days of 1997 when an evangelical Blair (as yet untainted by war crimes and corruption) effectively out-Thatchered the Tory Thatcherites.   In case you haven’t noticed, that was eighteen years ago!

Nor is it just the Blairite wing of the Labour party that is trying to turn the clocks back.  Labour’s Tory opponents have an even bigger problem on their hands since the economics of neoliberalism failed so spectacularly in 2008.  Insofar as Osborne and Cameron have a long-term plan at all (and for the most part, the slogan is little more than a means of deflecting attention away from short-term failure) it is to recreate the politics of 1984 – a confident Tory party that had just secured a massive majority on the back of the Falklands war, freed to deregulate the banking and finance industry; sell off public housing on the cheap in order to pump up house prices; and sell off state run industries on the cheap in order to pump up the stock market.  Today, schemes like Help to Buy and the plan to force housing associations to sell off their housing stock; the sale of the remaining state assets; and using taxpayers’ money to keep the banks solvent, are each intended to revive the glory days of Thatcherism.

There is a major flaw in both the Tory and Blairite positions.  We – those of us who live and work outside the City of London – have been in a depression since 2008.  That depression is the result of the policies put in place in the early 1980s, and developed to their conclusion by Blair.  For more than thirty years, the wages of working and middle class people in the UK have been falling in real terms.  The Thatcherite solution to this was threefold:

1. Encourage female employment.  While this may have been a positive choice for some women who were able to move into relatively high-paid professional careers, for most women it meant low-paid/low-skilled work in the service sector in order to maintain their families’ standard of living 
2. Offshoring manufacturing served to keep the price of goods low, even as it undermined employment and living standards within the UK 
3. The explosion of credit after the “big bang” in 1986 gave working people the illusion of increasing wealth as the value of their homes grew faster than the real value of their wages.  So long as we could keep rolling over the debt, we could keep the economy growing.

All of this came to an end in 2008.  While much of the media has focused on the growing level of government debt, it was actually the limits of private borrowing that provided the underlying crisis.  Although most people (including most MPs) continue to believe that government creates money, in fact more than 95 percent of the money in circulation is borrowed into existence every time a bank makes a loan.  As a recent Bank of England paper explained:

“In the modern economy, most money takes the form of bank deposits.  But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans.  Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” (my emphasis)

This was the dynamic and liberating policy that the Thatcher government unleashed in 1986, and that New Labour took to its logical conclusion between 1997 and 2008.  It worked in the 1980s because the UK economy was emerging from a series of crises and recessions in the 1970s and early 80s.  Businesses were seeking investment to grow, but the old system in which the Bank of England controlled the money supply left business starved of cash.  A similar situation prevailed in the housing sector – people’s mortgage applications were routinely turned down not because they had poor credit ratings, but solely because the banks had already loaned up to the limit set by the central bank.

By 1986, the Thatcher government had largely won the “state v market” argument.  With the deregulation of banking and finance (which was also pursued by Reagan in the USA, and quickly spread across the developed world) the money supply would be determined by the collective actions of bankers – who (probably correctly) were deemed to be wiser than civil servants.  Since banks were thought to be risk-averse, government assumed that they would not engage in reckless lending.  But by underwriting successful business, and by extending prudent levels of credit to consumers, they could play their part in generating economic growth.

By the time New Labour came along, there was no real opposition to this belief.  Rather than reining in the banking and finance industry, Blair removed much of the remaining regulation (mirroring the Clinton administration in the USA).  New Labour became “extremely relaxed” about people getting filthy rich – largely on the back of government contracts and Private Finance Initiative deals that were spectacularly poor value to taxpayers.

The problem was that, despite their celebrity status under Blair and Brown, bankers were not particularly wise.  In fact, after 1986, bankers behaved in more or less the way that bankers have always acted throughout history: 

• Initially conservative as a result of the recessions of the 1970s and early 80s, the bankers tended to lend only to the safest businesses and consumers 
• Since the majority of these tended to be successful and profitable, the bankers convinced themselves that they had some kind of Midas touch, and began lending to riskier ventures and less credit worthy consumers 
• As by now the economy was growing, even these riskier loans tended to be successful and profitable, so the bankers began to take even greater risks, fuelling asset and housing bubbles barely different from the Dutch tulip bulb bubble 
• By the early 2000s, what was in reality a global Ponzi scheme was reaching its limits.  People who should never have been considered credit worthy were being offered 125 percent loan to value mortgages with very low initial interest rates in the belief that rising prices would allow the debts to be repaid.  
• Then2008 happened!

There is one key reason why Osborne and Cameron cannot hope to recreate the conditions of 1986.  Put simply, the 2008 crash was the unforeseen consequence of the Big Bang “solution”.  Our current crisis does not concern the supply of credit (money), but rather the demand.  Private (i.e. company and household) debt is higher today than at any time in our history.  The credit card is maxed out.  Too many people and companies are struggling to service the debts they already have to allow for a new round of credit-fuelled economic growth.  Indeed, without quantitative easing and historically low interest rates the private sector debt bubble would implode, rendering most of the banking and financial sector insolvent.  Put simply, you cannot pump up a debt bubble that is already at bursting point.

If Osbourne and Cameron cannot hope to recreate the conditions of 1986, then any Blairite attempt to regenerate the glory days of the late 1990s are doubly doomed.  The whole New Labour project was based on the myth of what economists called “The GreatModeration” – that somehow globalisation had ended the cycle of boom and bust, and replaced it with a perpetually growing economy based around manageably low rates of inflation.  Governments would be able to afford things live exorbitant PFI deals if the economy kept growing.  Firms could increase workers’ wages in line with inflation.  Consumption could continue for ever.  But each of these has now turned into its opposite.  Government debt is much harder to pay off; companies have stopped investing; wages are falling; and consumers are reluctant to take out new loans.

Another way of looking at this picture is to understand that cyclical crises are an inherent component of capitalist economies.  Every 30-40 years, the economy is plunged into a crisis that is largely the result of the unforeseen consequences of the “solutions” to the previous crisis.  So, for example, the Keynesian state funding in the aftermath of the Second World War created both the boom of the 1950s and 60s, and the conditions for the recessions of the 1970s and early 80s.  Similarly, the privatisation and deregulation that generated the boom of the 1990s also created the conditions for the collapse since 2008.

This change in economic fortunes can also be seen in the radical political fracturing that occurs every 30-40 years too.  Reforms introduced in 1870 to manage industrialisation and the growth of the urban population had run their course by the turn of the twentieth century.  The fracture came in 1906 with the election of a Liberal government that introduced a series of (in their time) radical social reforms, including state pensions and labour exchanges.  They were also the last government to make serious changes to Britain’s unelected House of Lords.  Interestingly, following the First World War, it was the Tories who became the beneficiaries of the Liberal reforms – remaining in office for almost all of the 1920s and 30s, yet not attempting to reverse the reforms.

Something similar began to occur prior to the Second World War.  The depression of the 1930s persisted, particularly in the old industrial regions of the UK.  Many of the political movements that had arisen out of this discontent coalesced around the Labour Party which had entered government in 1940 as part of Churchill’s coalition, and which was swept into office in July 1945.  This government introduced far more radical policies than those of 1906, including the National Health Service, social security and pensions, public housing and nationalised utilities. Once again, it was not the party that introduced the reforms that became its inheritors.  After 1951, three successive Tory governments chose to embrace and build upon the Labour reforms.

The Wilson (Labour) and Heath (Tory) governments reaped the unforeseen consequences of the post-war settlement.  State funding had become inflationary; nationalised industries had become inefficient; and a series of external shocks (such as the OPEC oil embargos) plunged the UK economy into several – seemingly intractable – recessions.  Unusually, it was a Tory party (which had rejected traditional conservatism in favour of a neoliberal radicalism) that (after a failed attempt at austerity between 1979 and 1983) introduced the new politics of the private market.  However, as with previous reforming governments, it was the opposition that was to reap the benefits.  By 1996 it was a resurgent New Labour party – clothed in the vestments of Thatcherism – that was to embrace and build upon the Thatcher reforms; confining the Tories to opposition for 13 years.

So where are we now?  

Arguably we find ourselves in the same part of the economic/political cycle as the Tories of 1905 and 1939, and of Labour in 1979.  We have a government desperately trying to recreate the conditions of its earlier success by implementing the very policies that are now fuelling the crisis.  But we also have the opposition of 1970 and of 1929-31 – parties so wedded to the narrative of the past that they cannot break free.

Insofar as Corbyn (at least potentially) offers a winding back of the clock, it is to early 1945 – when a confident Labour Party felt able to pursue its own policies rather than respond to those of the opposition – or to 1975 when a confident Margaret Thatcher felt empowered to do away with the post war settlement in favour of the private market.  Corbyn could yet play a similar role, defining the new political narrative that will have to emerge out of the ashes of the Thatcher/Blair project.  But this will not be achieved by turning the clocks back – not to 1997 or to 1945 – but by developing the policies that the UK needs to get us out of the current economic and political stagnation.