Andy Burnham, Labour’s heir-elect (if only he can be elected), has said that he wants to “end 40 years of neoliberalism”. That is bold, you might think. Rash, even. But unfortunately for Burnham, neoliberalism is only responsible for half of the problems faced by the UK economy. If he wants to achieve the sustainable and well-distributed economic growth that has now eluded the country for nearly two decades – and which it is widely assumed is the only possible basis for a Labour victory at the next general election – his policy prospectus will have to go deeper.
Most academic economists and political scientists disdain the term “neoliberalism”. It is too unsubtle, they think, and now too widely used as a general insult from people on the left towards anything to the right of them. But Burnham’s characterisation of the four horsemen of the neoliberal apocalypse – “deindustrialisation, privatisation, deregulation and austerity” – is quite a good one. (He used to have another horseman, Brexit, but this has now been dropped in deference to the Leave-voting constituents of Makerfield. And rightly so, since Brexit was not part of the neoliberal project. Opposed by almost everyone in the business and wealthy classes, it was one of the early signs – along with Trump’s first election victory – that neoliberalism might have passed its electoral peak.)
Neoliberalism was a political project founded on an economic theory. The theory – which had more of the character of a myth than a basis in evidence – was that freeing markets and enterprises from regulation, public ownership, taxation and trade unions would unleash such efficiencies of production that economic growth would be guaranteed, and all strata of society would benefit. The economic ur-texts are generally ascribed to Friedrich Hayek and Milton Friedman. But it is notable that the most important works of these founding fathers were entitled, respectively, The Road to Serfdom and Capitalism and Freedom. Though both Hayek and Friedman were Nobel Memorial Prize-winning economists, their primary motivation was political: a fierce commitment to individual and corporate freedom as the overriding political value, and a visceral hatred of socialism. In the postwar period they saw freedom as being deeply threatened, both by Soviet communism and by the Keynesian social democracy that European states were putting in place.
Hayek famously founded the Mont Pelerin Society in 1947 to advance the cause of political liberty and its economic corollary (as it claimed), “private property and the competitive market”. But the more important institution in the global spread of neoliberal ideas was the Atlas Network, created much later, in 1981, by the British entrepreneur Antony Fisher, who had earlier founded the libertarian think tank the Institute of Economic Affairs. Whereas the Mont Pelerin Society maintained a slightly other-worldly academic air, the Atlas Network was ruthlessly focused on power. Attracting extensive financial support from wealthy financial and business backers in the US, Europe and elsewhere, it spawned free market think tanks right across the world, aiming to create the intellectual and political conditions for right-wing parties to enter government and implement its policy prospectus. It claims nearly 500 think tanks in membership today.
By 1981, of course, Hayek’s and Friedman’s economic ideas had already become the theoretical justification for the economic programmes of Margaret Thatcher and Ronald Reagan. Thatcher quickly abandoned Friedman’s “monetarist” policy of limiting the money supply to control inflation (which completely failed). But her imposition of punitively high interest rates, which led to deindustrialisation and mass unemployment, and her subsequent programmes of privatisation, deregulation of the financial sector and anti-trade union laws revolutionised economic policymaking in the UK and across the developed world. Thatcherism is also associated with tax cuts, of course, but this is more legend than legacy. Thatcher and her chancellor Nigel Lawson cut income tax rates drastically. But they raised other taxes, and the share of taxation overall in national income was actually higher at the end of her rule in 1990 (32.9 per cent) than it had been at the beginning in 1979 (30.7 per cent).
Neoliberalism should be understood as a political project because its economic consequences have completely – and predictably – contradicted its much-vaunted theory. Since 1979, the UK economy has grown by an average of 2.1 per cent a year. This compares with 3.2 per cent in the Keynesian period from 1949 to 1979. (Since the financial crash of 2008, the figure has been 1.2 per cent.) The share of national income taken by ordinary households in wages and salaries (rather than by the owners of capital) rose in the Keynesian period from 57 per cent in 1948 to 64 per cent in 1975. Under neoliberalism, it fell to 52 per cent in 1996 before rising a little under New Labour. Since the financial crash, which can be partially traced to the deregulation of the British financial sector, average incomes in the UK have stagnated. Median weekly pay last year was £767. After adjusting for inflation this was 2 per cent less than in 2008. Productivity has fared only slightly better: historically around 2 per cent, annual productivity growth since 2009 has averaged 0.7 per cent. But, despite the slashing of public expenditure in the austerity period, neither national debt nor taxation as a share of national income has been reduced. In 2009-10 the national debt was 65 per cent of GDP. In 2018-19 it was 80 per cent (after this it ballooned due to the response to Covid). The share of taxation remained about 33 per cent throughout.
Now we must be careful here. Global economic conditions have not been the same in the period from 1948 to 1979 as in the years since. It is possible that the post-war Keynesian settlement would have performed worse had it been continued. But it is very hard to claim that the neoliberal project has been an economic success. Unless, of course, you are one of the corporations that now holds a near-monopoly position in your market, your management largely unencumbered by trade unions, with a soaring share price based on record profits earned by your assets. Or if you are one of the senior executives whose salary is now 113 times the average wage, where in the 1970s it was merely 20 times. Or if you are one of the wealthiest 10 per cent whose wealth has more than doubled as a proportion of national income between 1979 and today. It is these groups, not the economy or the population as a whole, which have been the beneficiaries of neoliberalism, as its critics had always predicted they would be. And unsurprisingly it is they who have been its loudest advocates and largest funders. This is the essential politics of neoliberalism.
The fact that most modern product and digital markets are dominated by a very small number of very large companies is perhaps the clearest indication that, if neoliberalism was ever about promoting the efficiency of the market, it has not been that for a long time. It is, of course, a basic economic principle that competitive markets often do not stay competitive very long: successful firms become near-monopolists, buying and driving out their competitors, and then (a basic principle of political economy) influencing political decisions and regulatory policy to ensure that their monopoly position is maintained.
The sociologist Colin Crouch calls the resulting system “corporate neoliberalism”. No longer anything to do with free markets or free enterprise, its dominant feature is the stranglehold which monopolistic businesses have established over economic policy in order to protect their interests. For Brett Christophers and Guy Standing, it is best characterised as “rentier capitalism”: the dominance of financial and corporate asset holders able to protect their near-monopoly positions to earn supernormal profits (“rents”, in the economic jargon). The digital platform giants of Amazon, Google, Meta, Microsoft and Apple are the rentiers we all know best. But the water and energy companies, the private equity firms who now own most of the social care sector (as well as many of Britain’s vets) and the private landlord companies raising actual rents are all the beneficiaries of neoliberalism’s not very liberal but entirely anticipated outcomes.
Andy Burnham’s Manchesterism – as so far articulated – is primarily an attempt to get to grips with rentierism, in the form created by privatisation. Burnham argues that in sectors such as local transport, rail, housing, energy, water and social care, public control (which may but does not necessarily mean public ownership) can ensure that private providers are not creaming off excessive profits while under-investing in productive assets and charging high prices. He notes that, by keeping prices down in these sectors, governments could not only help hard-pressed consumers, but thereby reduce the measured rate of inflation, which would take pressure off the Bank of England and help keep interest rates down. Moreover, he argues, cutting such prices would reduce the degree to which the state has to pay housing and other benefits to help families make ends meet. In this way he makes a politically innovative – and surely attractive – link between capping the profits made by privatised providers and reducing both the cost of living and the cost of the welfare state.
The political and financial obstacles to “de-privatisation” will be formidable, particularly if the privatised companies have to be bought out, even in part. (The great advantage of “re-publicising” transport, whether buses or rail, is that privatisation of these sectors was designed around limited-length contracts and franchises, which can be changed or abandoned without compensation when they expire.) But reversing the other vectors of neoliberalism will be even harder.
It is not that “re-regulation” is impossible. Labour is already in the process of re-regulating the labour market, via its workers’ rights legislation, and the Bank of England has recently worried out loud about the inadequate regulation of private credit markets. Similarly, it is a laudable ambition for Burnham to seek the “reindustrialisation” of areas of the country, such as Makerfield, that lost their mining and manufacturing economies 40 years ago and have never properly recovered. But such an ambition cannot simply be willed into being. Reversing austerity in spending on public services is clearly possible if the government is willing to raise taxes, and if the bond markets and the outlook for inflation (and the public) will wear it – indeed it is what the Starmer government has done in its first two years. But its tight spending plans for years three to five of this parliament, to meet its fiscal rules, will feel like a return to austerity if they are not changed.
The problem is not that an “anti-neoliberalism” of this nature cannot be conceived or would not be helpful. It is that, 40 years down the line, on its own this would not provide the policy solutions to the problems of low productivity, slow growth, low tax revenues, wealth disparities and regional inequality which neoliberalism has created. And it is even less the answer to the new economic challenges which have not been caused – however much we might wish to blame it for everything – by neoliberalism. If neoliberalism is the inheritance of our economic past, the future we are entering will confront us with different problems altogether.
The most pressing of these is the squeeze which a combination of American tech dominance and Chinese industrialisation has put on all European economies, including Britain’s. Tony Blair is right that AI is changing (nearly) everything; but wrong that the answer is to give the tech giants all they want in the hope that they will invest a little more in Britain. That way lies not merely unmanaged job loss and dislocation, and possibly existential risk from uncontrolled AI. Even more certain is that the UK and Europe will be left in the position more normally associated with developing economies: takers of other countries’ technologies, not the makers of their own; powerless supplicants for inward investment; and at the mercy of geopolitical pressure from a technologically hegemonic US.
The UK has many brilliant science-based and AI companies. But the tendency of innovative British start-ups to sell out to (usually) American corporations before they are truly world-leading – and the unwillingness of the British state to prevent this or offer such companies an alternative – has led us for over 40 years to a position of severe industrial and trade weakness. (Over the ten years from 2011 to 2021 it is estimated that 1,200 British start-ups were sold to overseas buyers, with the cumulative loss of economic value by 2026 around $1 trillion.) Outside of the financial and professional services sector, and perhaps life sciences, we have far too few companies which are true global powerhouses.
And now pressure from China is forming an economic pincer. Through a well-planned industrial and trade strategy over the last 15 years, China has cornered the market in the refining of critical minerals, and in the manufacture of the key renewable and electric technologies – wind turbines, solar power, electric cars and batteries – required to power the transition to net zero. So far from the cheap-labour “assembly plant” economy Western manufacturers once assumed was its limit, China is now at the leading edge of high-tech innovation, with more active patents than the US and Japan combined. Through strategic subsidies in a semi-state-controlled economy, and wage levels still considerably below those in the Global North, China is rapidly outcompeting key elements of Europe’s manufacturing base, and applying a chokehold on the continent’s energy security. This might have been fine under the benign and naive neoliberal philosophy of free trade and comparative advantage. But that is not what China believes, nor how it behaves. Economic sovereignty and geopolitical power are the key principles now; and Europe and the UK are in danger of losing both.
This bears particularly on another challenge which is not the product of neoliberalism, that of climate change and global environmental damage. On climate change both the UK and EU have been world leaders, with comprehensive legal frameworks for emissions reduction, and sensible instruments for achieving it. These include the EU and UK emissions trading schemes and the subsidies and mandates which have expanded renewable power and are now promoting electrification in heating and transport.
But with the low-hanging climate fruit now having been picked, this policy tree is getting harder to climb. The datacentres needed to power AI are vastly increasing energy (and water) demand. Volatile and rising fossil fuel costs still largely determine energy prices. Yet British and European manufacturing industries desperately need lower costs to remain competitive. Buying green technologies from British and other European companies would be a sensible linking of climate and industrial policies, and avoid potential security risks from using Chinese equipment; but the latter is much cheaper. Marrying the climate and economic imperatives is not impossible, but it has become unquestionably more difficult .
And then there is demographic change, which neoliberalism did not cause either (unless you draw a – not totally implausible – link between lower wages and higher rents to the fall in the fertility rate.) The combination of an ageing population, a higher health and pensions bill, and a smaller proportion of people in the workforce is piling up trouble: a vast gap between spending pressures and the tax receipts to meet them. The Office for Budget Responsibility has consistently pointed this out, but no government has yet been brave enough to level with the public about it. It makes higher immigration an obvious solution (if only a short-to-medium term one, as migrants get old too); but it will be an even braver government that makes this its primary response.
Here then is the multi-faceted growth challenge which will face Burnham, should he become prime minister in the next few months (or indeed will face Wes Streeting or Keir Starmer should he not). Neoliberalism has caused the problems of our recent past which still need to be addressed, but it is not responsible for the problems of the future now upon us. Anti-neoliberalism can offer help in some areas, but does not in itself offer the policy solutions now needed.
The neoliberals are still out there, of course, with their response to the challenge. Tony Blair has helpfully made himself their figurehead. As he explains in his recent essay, government needs to get out of the way of business, for only free enterprise can generate growth. Getting out of the way means further deregulation, especially of AI, finance and labour markets. It means lower business taxes, and deeper “supply side” reforms to the planning and welfare systems.
Burnham has rightly rejected this. But it is no criticism of what he has said so far that there is still work to do if he is to turn this into an alternative economic prospectus.
[Further reading: Manchesterism is not socialism]
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