Our third economic crisis in rapid succession and an unhinged USA mean the time is ripe for major change. But if it is going to be positive change, the left have some important lessons to learn.
Robin McAlpine is Head of Strategic Development at the Common Weal think-tank in Scotland. Cross-posted from Common Weal I was asked at question week – is this the moment? Is this the sudden chance to change what needs changed? Is this a 1945 or 1979 moment? My answer was ‘no, not quite, hold on for a minute’. I think it might be helpful to explain that – in large part to warn that we can very easily screw this moment up again.
So why is this moment ripe for ‘inflection-point change’? I could just write ‘because we’re about to be in our third economic crisis in just over 15 years’ and leave it at that, but it is more than that. The European economic model is not working and that is bringing down its social and democratic model.
At the same time, the US is in an omni-crisis which isn’t yet being acknowledge. I don’t want to overstate the pace of what is happening but I do want to highlight the trajectory – the US is in a ‘what do we really sell the world?’ crisis because an awful lot of it looks like optional expenditure compared to what China is selling. The electorate is massively polarised politically, and its leadership has alienated its key allies too many times and as a result we are moving away from the Dollar as global reserve currency.
Perhaps above all, globalised neoliberal petro-capitalism is no longer working. It is supposed to generate wealth and then redistribute it, but only half of that is happening. It is supposed to drive ever-rising productivity when it is actually driving ever-rising price gouging. And it is supposed to be based on a frictionless global economic system that stopped being frictionless a while ago.
All of this is teetering on top of two shaky pillars. One is the AI bubble and the other is the Iran War. If the former bursts or the latter drags on (or if it has already dragged on too much and sets off an economic domino topple) we might find ourselves in a worrying and unprecedented situation.
In fact, as Larry Elliot neatly argues here , AI could create a massive global crisis in capitalism whether it doesn’t work (and we get an AI-bubble collapse that sinks the financial system) or if it does (and sudden mass layoffs everywhere get into a doom loop of reduced consumer demand, reduced profits and so more layoffs).
And that’s just the basics. There are a dozen other things that could blow up any minute. So the need for change has never been clearer. But does that mean it will come? The evidence of the past is that the answer is ‘not when you think’, and it’s once again because humans are daft.
There are all sorts of patterns of human behaviour which swing back and forwards between two poles in reaction to each other. For example, in a crisis (your ocean liner is sinking) people tend to first be selfish, then show enormous solidarity, then break off and start looking after the self again, then start to think of others again.
The panic makes us prioritise survival. Then we feel bad and realise our survival is tied up with everyone else’s. Then after a period of time we fail to save everyone so we become selfish again. Then, when we’ve saved ourselves we feel guilty so our minds return to saving others. Humans are not brilliant at quickly arriving at a sweet-spot compromise and tend to overreact in both directions.
Something similar happens in social crises. Think of the financial crisis of 2008. First, we’re queuing at banks to try and save our own money. Then we’re absolutely furious and demanding that whoever made us wait panicking in that queue should be punished. The politicians articulate this emotion and we go ‘yeah’ and get back to looking after ourselves.
Then gradually we realise they weren’t punished and so we start to want the whole bloody system changed. But that takes too long, and we have to get on with our lives, so we forget and get into a day-to-day self-focus – and the moment passes.
What very seldom happens is a crisis hits and we jump straight to bold remediation or change. The only occasion I can think of in the democratic era was straight after the Second World War, and that was a cataclysmic-scale event that left Europe in ruins. The oil shock was 1973 and the Winter of Discontent was 1978 but the ‘Big Bang’ deregulation of the City of London (which is the really pivotal moment in the rise of neoliberalism) doesn’t happen until 1986.
But the process of transition from Keynesianism to Monetarism (the underpinning economic theory of each age) began earlier, and the reason it did is instructive. Both architects of neoliberalism (Friedrich Hayek and Milton Friedman) pointed out that their views were fringe when they were developed. It was Friedman who said it would take a crisis to make them mainstream.
The point is that he knew that if the ideas didn’t predate the crisis, they couldn’t be the solution to the crisis. As he said : “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” He knew he was fringe, but he knew that things can come from the fringe to the mainstream in a crisis – so long as they preexist.
These are the two aspects of what Friedman said which are of great importance to those of us on the other side of the political spectrum from him. The first is that you need to be patient. The left very often thinks that crisis simply equals the reform they want, a straight line from disaster to their own utopias. Change isn’t a straight line.
But equally, the left tends to think that you can draw a straight line between indeterminate points. It expects ‘change’, but what change? Hayek and Friedman produced actionable, implementable transformation options and advocated for them systematically for a long time. Their desired destination was carefully mapped out.
The left has done no such thing. We talk in terms of values, of what we don’t like, of how it would feel to be in this next place. We are fundamentally poor at describing what the next place actually is, how it works or how we get there. People will not drop one system for no system.
A left theorist who gets this is Kate Raworth , the originator of the concept of ‘donut economics’. In fact she regularly cites the above Friedman quote herself. But, despite my great respect for her work and for her, I think it falls short. I think it is an excellent conceptualisation of how to know you’ve got it right, but I don’t think it has enough clearly implementable policy change.
Let me try and explain this a bit more. The economic orthodoxy of the UK from the Great Depression onwards was derived from the work of Maynard Keynes. He argued that the key to managing the overall economy and its ups and downs was to manage aggregate economic demand (very loosely, how much money everyone is willing to spend).
When all is well, nothing needs to be done; demand manages itself. But in periods of depression you need to stimulate demand to get the economy levelled again (especially through countercyclical public spending) and in periods of boom you need to reduce demand (through tax and interest rates).
Monetarism is totally different – it is all about money supply. It is a quite separate and distinct theory of the economy. Monetarism thinks that managing the economy is not a demand-side issue but a supply-side issue. Instead of managing aggregate economic demand you allow the market to do that alone. Meanwhile you manage the supply of money – too much money and the economy runs too hot, too little and it cools down.
Crucially, the market does that – you just control the money supply. This means that rather than a concept of managing the economy through the lens of ordinary people and how they can spend you ignore ordinary people altogether and simple manage abstract finance, largely on the basis of what the financial sector wants to happen. Unemployment is incidental to Monetarism.
That’s a thing you can do. That is a set of direct policy practices that anyone can begin using without thinking about it too much. Make inflation the purpose of central banks (inflation is a key money supply issue) and stop seeing public spending as an investment but as an economic drain to be minimised. That along with a load of other stuff you can just do.
What does the left have that you can just do and, if done, transforms the economy? The closest to such a plan is Modern Monetary Theory, but it is most certainly not a self-contained solution. It largely reverses some of the worst excesses of Monetarism. But what about the nature of the economy? What work will we do? How will we get paid? Who has all the money and why aren’t they investing it for the public good?
Who owns the economy? What is the ultimate goal of economic policy? How are we reforming the tax system? How do we deal with international financial relations in a post-globalised world? What is our relationship to consumption, ownership and the environment? What does success actually look like?
In don’t think we have sufficient answers to these. I don’t believe there is anything to ‘pick up’ from the fringe to bring to the mainstream which would represent self-sufficient policy transformation in the way the post-war welfare state did, or in which the Keynesian-Monetarist shift did.
And of course, there is another condition – you need politicians who are willing to reach for any ideas at all rather than curl up in a paralysed ball spouting platitudes like the current lot. But even if there was, they need something to pick up.
I’ve been thinking about this for quite a while now and I have quite a lot of thoughts about it. I shall jot them down for you at some point.
For now I want to point out only that this crisis is probably real, it will probably be brutal and, as the third in a row, it will probably create greater calls for change than any I’ve seen in my time. But the crucial moment probably isn’t this year or next. And by the time it comes, a solid alternative idea needs to be on the table.
That is both an opportunity and a warning. Is it a warning we will heed exactly like we didn’t the last two times? Or, in more colloquial terms, will we get the finger out this time? We can’t say we didn’t get advance warning.
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