John Gray on the Con-Dem Coalition Government

As always John Gray has the most incisive viewpoint on British political economy and the illusions sustaining the notion that the recovery from the economic crash of 2008 is over or that there will not be radical upheaval in coming years.

Writing in the LRB, ( Progressive, like the 1980s, October 21 2010 ), Gray claims that there is nothing surprising in the Conservative-Liberal Democrat Coalition government's neoliberal policies of "rolling back the state" but that events and the possibility of political upheaval could lead them to start to increase the powers of the state again.

The forthright support for George Osborne's policy of huge cuts coming from Clegg was not merely part of a political strategy.

On the contrary, it was inherent in the neoliberal creed outlined in the Orange Book in 2004 with its ideological belief in decoupling radical free market ideas from social conservatism and social democracy

The aim of the contributors was to reaffirm a version of liberalism they believed had been lost: one in which support for small government and the free market goes with a strong commitment to civil liberties and freedom of lifestyle.

This strand of liberalism was mistakenly discredited, they argued, when Thatcher attempted to link the free market with social conservatism.

The Orange Book liberals were avowedly anti-conservative. The principal target of their critique of British politics was not the free-market right, however, but the powerful social democratic strand in their own party.

Gone by 2008 was the old liberal belief that the state had a role to insulate and protect the public from the effects of an unfettered free market,society would be subjected to it in order to guarantee the best possible outcomes

Clegg never "sold out": his neoliberal vision was plainly laid out in the Orange Book long before the crash .

What Clegg and his fellow market liberals were engineering was a fundamental reorientation in the party’s values.

Instead of the type of liberalism exemplified by Hobhouse and Keynes, which accepted that the market had to be curbed when it failed to benefit society, the party was sold a liberalism in which the market became the benchmark by which society would be judged.

Rather than being assessed according to standards of freedom and equality, the market became the fundamental norm from which any departure would in future have to be justified.

Gray claims that the consequence of this follows on from the general decline in politics, from one where large parties with a wider membership and institutions of civil society could affect policy, into an oligarchical elite of cliques and micromanaging elites which have more in common with each other than the sale of different political brands suggests.

The hollowing out of parties continued with the rise of New Labour, which was invented by fewer than a dozen people who turned a mass political organisation into a vehicle for the Blair/Brown project of market-friendly modernisation.

As in the 18th-century elite politics analysed by Lewis Namier, British politics today is shaped by a handful of closely related people. The prosaic reality underlying the media romance of sibling rivalry between the Milibands and marital disharmony in the Balls family is competition within this small group.

If the coalition is a novelty in British politics, there is nothing that is remotely new in its ruling ideas....

Both Cameron and Clegg have insisted that moving away from state provision is not just a matter of saving money: the result, they say, will be services that are more responsive to personal choice.

It is true that injecting markets into public services may not save any money; the large changes that are being rapidly introduced in the NHS may end up creating a service that is significantly more costly.

This only confirms that the coalition is ideologically driven. It may believe that it is responding pragmatically, but its view of things is shaped by the ideas of the 1980s: ideas that in many respects lag behind events, and which the coalition may yet be forced to discard.

This is as true in global politics. As far as the USA's prospects are concerned Gray has little reason to think that its decline will be prevented. Events have moved away from the USA and European nations such as Britain calling the shots or having a "progressive future" guaranteed.

Nor will the neoliberal state rejuvenate them vis-a vis the Chinese challenge any more than the way China has embarked on massive industrialisation mean that it is needs to "liberalise". It was by rejecting the IMF and Western advice, the "Washington Consensus" that it has the economic and political power it has now.

The US has been pursuing a Keynesian-style programme of monetary stimulus, which looks like being continued in another round of quantitative easing – QE2, as it is sometimes called.

Whether or not the stimulus will be large enough (some ultra-Keynesians doubt this), it will not be accompanied by any coherent action on the federal deficit. The collapse in Obama’s popularity is likely to result in the Democrats losing control of one or both branches of Congress.

Trapped by its archaic and dysfunctional system of government, the US will then be gridlocked. The global economy will continue to drift, and any recovery in Britain will fall away.

As a consequence of the financial crisis, the market-based globalisation of the past couple of decades is giving way to a model in which states are the principal actors. Chinese state capitalism has weathered the global crisis better than any market liberal economy and even Russia is less burdened by debt.

After the implosion of the American financial system emerging economies need no longer submit to the dictates of a ‘Washington consensus’ that was never implemented in Washington. It might be thought that the current phase of globalisation would allow a greater degree of international co-operation.

In some ways, however, this new phase is more disorderly. The retreat of American power has left the world without a functioning monetary regime.

Economic imbalances are surfacing in geopolitical rivalries and currency wars, and it is unclear how these conflicts will develop. What is evident is that the era in which states were ready to surrender control of their economies to market forces is over.

The postwar welfare state may be history, but governments cannot risk leaving their populations without a shelter against chaos. If social democracy is not a viable option, neither is market liberalism.

International situation pertains towards diminished influence and economic stagnation, then the domestic consequences look no less stark.

The Conservative Liberal democrat Coalition's neoliberal policies are a gamble and could merely intensify the crash that was determined in its intensity and by New Labour's irresponsibility and attempt to substitute public spending with easy loans and borrowing beyond one's means.

A roll-back of the state of the magnitude that the coalition envisages will leave people more exposed to the turbulence of world markets than they have been for generations. Inevitably, they will seek protection.

The prosperity enjoyed by the majority of those in Britain in the decade leading up to the crash was largely an illusion.

Debt-fuelled consumption masked the full extent of the increase in inequality, while the casualisation of sections of the labour force concealed the real scale of unemployment.

Reining back welfare benefits and shedding labour in the public sector as the government intends will only make the drop in living standards that is now unavoidable larger and more painful.

There is much talk of the coalition’s lack of ‘narrative of growth’ to complement the need for retrenchment, but in these circumstances its lack of any convincing narrative of fairness may be more disabling.

In the terms of The Orange Book, condemning the pattern of incomes that emerges from the market as unfair is a category mistake; there is no standard of fairness independent of the market. There is plainly some awareness of this difficulty in the government.

In his conference speech Cameron defended the withdrawal of child benefit from higher earners on the ground that it is fairer if this group makes a larger contribution towards cutting the deficit.

At the same time some ministers (including Clegg) have defended dismantling the public sector with the claim that those who work in it enjoy unfair privileges.

Public sector pensions are singled out for particular criticism because they provide a degree of protection against the risks of the market that is no longer available to the rest of the population: fairness requires that everyone be subject to the same insecurity.

Since the result is to place the settled middle-class life to which many people still aspire beyond reach, it is hard to see this view having much traction.

There will be no easy ending to the consequences of the economic crash.

With the possibility of a double dip recession, the capacity for discontent, an upsurge in far right radicalism and violence cannot be discounted. That is what happens when politicians and the public collude in a vast fantasy of debt fuelled growth and living on the tick.