What I mean is that there are two different ways to think about the plan. We could see it as a gentle step towards co-determination of a sort that’s common in Germany. Or we could instead see it as Sam Dumitriu does, as a “straightforward hike in taxes on profits” – perhaps even as a form of expropriation - which will raise the cost of capital and so reduce investment.
This is where performativity comes in. Words are not mere words. How you describe the scheme determines its effects. The boss who regards it as a mild reform is likely to try to make it work. The one who regards it as a threat to property rights and to his empire is more likely to up sticks. If Sam’s view is widely shared in boardrooms, his warning that firms will disinvest will be self-fulfilling.
Now, in mere hydraulic terms, Sam’s warning seems overblown. One Big Fact tells us this. UK share prices have under-performed the rest of the world for ten years, suggesting that the UK’s cost of equity capital has risen relative to that elsewhere. AFAIK, however, critics of McDonnell have been relaxed about this – and perhaps rightly so, as it’s difficult to establish that this has deterred investment and innovation**.
Hydraulics, however, are not the point. What matters is animal spirits. A rise in the cost of capital because of direct policy action might have worse effects upon investment than one caused by stock market falls for other reasons – especially to the extent that a Corbyn government will increase uncertainty anyway.
What I’m trying to drive at here is that neoliberalism doesn’t just describe the world, but shapes it. As Jesse Norman says, “markets are living institutions embedded in specific cultures”. Our culture is a neoliberal one, which affects how markets operate. For example:
- Tax. If you regard higher tax as a price worth paying to live in a civilized society, you’ll be content to pay (moderately) higher rates. If, on the other hand, you regard it as theft then you are more likely to take steps to avoid it, either by working less, or migrating or dodging it by legal or illegal means. The shape of the Laffer curve depends upon tax morale and ideology. Neoliberal beliefs cause the revenue-maximizing top tax rate to be lower than it would be with social-democratic beliefs.
- Regulation. If bosses feel constrained to act with a sense of propriety in accordance with public morality – as Adam Smith thought we were – then they are likely to abide with new regulations. If, on the other hand, they regard them as restraints on the right to manage, they’ll seek to game them or avoid them.
- Politics. If you regard politics as just another marketplace in which the customer is king, you’ll defer to public opinion and thus downgrade expertise and representative government.
These are all ways in which neoliberal beliefs can be self-fulfilling. But they can also be self-refuting. For example, in the early 00s mainstream economists thought that securitization was a good way of pooling risks and thus of increasing financial stability. This emboldened banks to gear up, thereby causing a crisis.
My point here is a disquieting one. It is the case that many neoliberal ideas are plain wrong; neoliberalism, for example, might well have retarded productivity growth. It is not, however, sufficient to point this out. Neoliberal ideology – whether right or wrong – can create its own reality. Insofar as this is the case, it is a constraint upon what social democratic governments can achieve.
* Yes, I know some of you hate this word. But I can’t think of a better one in this context.
** Though of course, ascertaining cause and effect is damnably hard: is the All-share’s under-performance a cause of lacklustre growth, or the result of expectations of it?