In a recent speech Barack Obama talked about “an ideology that undervalues the common good.” He is referring to an ideology that came to prominence in the UK and the US and has underpinned politics and economics in Britain and America for the past 35 years. Its concepts have become mainstream ideas and it is now the dominant economic theory taught in universities. This post is a brief outline of the development and impact of the ideology, followed by some examples of its renewed influence in Britain in recent years.
A state of emergency was declared in Flint, Michigan, by the US government earlier this year due to lead contaminated water in the city. President Obama, acknowledging that no one issue was to blame, highlighted a more general mindset as one of the problems.
Part of what contributed to this crisis was a broader mindset, a bigger attitude, a corrosive attitude that exists in our politics and exists in too many levels of our government.
It’s a mindset that believes that less government is the highest good no matter what. It’s a mindset that says environmental rules designed to keep your water clean or your air clean are optional, or not that important, or unnecessarily burden businesses or taxpayers.
It’s an ideology that undervalues the common good, says we’re all on our own and what’s in it for me, and how do I do well, but I’m not going to invest in what we need as a community.
– US President Barack Obama, 4 May 2016, Flint, Michigan
One of Obama’s predecessors, Republican President Ronald Reagan, introduced this mindset to America in his inaugural speech in 1981, pronouncing that “government is not the solution to our problem, government is the problem.” Margaret Thatcher, the British Conservative Prime Minister, had already started to adopt a similar approach of ‘rolling back the state’ in the UK in 1979.
Reaganomics and Thatcherism were characterised by privatisation of state industries, deregulation, and a belief that competition in free markets produced the most effective outcomes for everyone. These market ideas relied on a view that society is made up of individuals who are free to make rational choices that maximise their own benefit. In this way consumers create demand and producers fulfil that demand, making their own rational choices to maximise their own benefit, or profits. This competitive process should drive down prices and drive up quality.
There was also a clampdown on trade unions, particularly in Britain, where several pieces of legislation were passed to restrict their power. Thatcher and Reagan believed this was necessary in order to allow the free market to operate efficiently. The concept of a union of people working together, using collective bargaining to achieve their objectives, was at odds with the concept of individual choice.
These ideas were a radical departure from the post-war political consensus of the mixed economy – a combination of the positive features of capitalism and socialism. In Britain that meant regulated private industry with trade union representation, public housing, and tax-payer-funded public services in healthcare, education, and welfare support.
When centre-left Democrat and Labour administrations gained power in the US and the UK in the 1990s, the new free-market capitalism went unchallenged. President Bill Clinton continued with deregulation, partially repealing the Glass Steagall Act that had separated traditional banking from high-risk investment banking. Prime Minister Tony Blair left the privatisations and trade union laws intact, and continued with the Conservative Private Finance Initiative to build schools and hospitals.
By the 2000s free-market capitalism was more commonly referred to as neoliberal capitalism, or simply neoliberalism. The ideology has been promoted in developing countries, often as a condition for loans, by the three most powerful economic organisations in the world: The US Treasury, the International Monetary Fund, and the World Bank. As a result of these organisations being based in Washington DC, neoliberal ideology also became known as the Washington Consensus.
Then in 2007/8 the financial sector crashed triggering a global recession … and nobody saw it coming. The most neoliberal deregulated part of the economy had to be rescued, at huge expense, by the tax-payer. The frontiers of the state were rolled forward. Government, it turned out, was the solution.
Today, after 35 years of the new capitalism, we can also see the impact it has had on wealth and income inequality. In America, 1% of the population own 35% of the nation’s wealth and the bottom 40% own just 0.2%. In Britain, the richest 1% have increased their share of the nation’s income from 6% in 1979 to 15% in 2007. The financial crash caused the share of the richest 1% to fall slightly but it remains around 12-13%, twice as much as it was 35 years ago.
Business as usual
In the years since the crash, corruption and mis-selling scandals have continued to surface in the financial sector while bankers continue to be paid large salaries and bonuses. The required regulatory controls, to separate traditional banking from investment banking, have not been implemented in Britain or America. The system remains vulnerable to another crisis. It appears to be business as usual.
One reason for this is that over three decades of free-market capitalism has resulted in a revolving door between government and the big corporations. These private companies, unaccountable to national parliaments or the public, now have significant influence in UK and US democracy.
In Britain there is a second reason. Shortly after the crash, in May 2010, a Conservative-led coalition government came to power, followed by a majority Conservative government in 2015. These governments, led by David Cameron, have brought forward policies very much in the Thatcherite free-market tradition: restrictions on trade unions, privatisation of public housing, and privatisation (‘academisation’) of all state schools. The government is currently on course to privatise more public assets than any government since 1979, even the Thatcher administrations.
Austerity or Ideology?
There have also been repeated cuts to welfare support, public services, and local government funding. This ‘austerity’ policy has been justified by the stated need to ‘balance the budget’ following the bank bailouts. However, it also fits in with the neoliberal desire to shrink the state, as the economist Ha-Joon Chang describes.
The political right [especially in the UK] are even using the argument for balancing the budget as an excuse to severely prune back the welfare state, which they have always wanted to reduce.
– Ha-Joon Chang, 2014
Changes to the NHS and the BBC also appear to be motivated by ideology. These public services are high quality, popular, and cost-effective, but they don’t conform to the principles of the individualistic free-market approach. They are based on a model of collective funding (national insurance, licence fees) and universal access. Profit is not the driving motivation. The NHS is “based on clinical need, not ability to pay.” The goal of the BBC is to “enrich people’s lives with … services that inform, educate, and entertain.”
Despite having pledged during the 2010 election campaign that there would be “no top-down reorganisation of the NHS”, once in power the Conservatives did just that and had legislation passed in 2012 that has paved the way for the piecemeal privatisation of the service. Knowing how popular the NHS is with the public, it was introduced as quietly as possible with little media attention or public awareness.
In response to government proposals on the BBC, Conservative Lord Patten, the former Chairman of the BBC Trust, has highlighted risks to the BBC from a “juvenile ideological fringe” that includes the Culture Secretary John Whittingdale.
I think there’s a serious risk [to the BBC] from bits of the government … there’s a sort of juvenile ideological fringe who, if given half a chance, will do the BBC real damage.
– Lord Patten, 4 May 2016
There is a clear ideological thread stretching from Thatcher and Reagan through to the UK Conservative governments led by David Cameron. A thread that appears unbroken by the impact of the financial crash or the adverse effects of inequality.
David Cameron left office yesterday after six years in power to be replaced by Theresa May who served under him. If May is to create “a country that works for everyone, not just the privileged few” she may need a new approach to politics and economics that is less reliant on process and ideology and more focussed on outcomes and the common good.
Sources of information
Andrew Sayer (2016): Why we can’t afford the rich.
Chris Patten (2016): BBC Radio 4, The Media Show, 4 May 2016
Ha-Joon Chang (2014): Economics: The User’s Guide.
James Meadway (2015): NEF Beginners guide to neoliberalism
President Obama, Official White House photo, licensed under CC BY 3.0 US
Reagan and Thatcher, Courtesy Ronald Reagan Library
Inequality cartoon by Joseph Farris, www.cartoonstock.com
David Cameron by Prime Minister’s Office, 10 Downing Street, licensed under OGL
Ha-Joon Chang by Discott, licensed under CC BY-SA 3.0
Lord Patten by James Yuanxin Li, licensed under CC BY-SA 3.0