The politics of stagnation

The government is changing the rules of the work capability assessment in an effort to push more people into work and thinking of cutting benefits. There's a link between this and those incessant scam phone calls we all get.

To see it, remember a fact which most political journalists neglect because of their focus on the minutiae of Westminster court politics. It is that the nature of capitalism shapes politics. As the man said:

The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

So, for example, in the 50s and 60s Fordist capitalism required a mass market for consumer goods. That gave us a Butskellite consensus between the main parties upon the need to ensure full employment. But when profit margins were squeezed (pdf) in the 70s, capitalism required labour to become more quiescent. Which gave us not just Thatcherism but years of confusion and conflict in the Labour party as it debated how to react to those new times.

Today, however, the defining feature of capitalism, and especially British capitalism, is stagnation.

This stagnation isn't merely a statistical artefact - two decades of sluggish growth in productivity, GDP and living standards. Its symptoms are all around us.

One is what Cory Doctorow has called the enshittification of the internet. Platform companies are no longer growing their customer base and so must instead monetize what used to be consumer surplus, with the result that "the surplus is handed to shareholders and the platform becomes a useless pile of shit."

Another symptom has been the housing crisis. Slower growth has led to lower real interest rates which in turn has pushed house prices out of the reach of many young people; an asset price is simply the capitalization of future cashflows and so a lower discount rate (lower interest rate) means higher prices.

Yet another symptom is our (further) retreat from meritocracy. It is faster-growing industries that create opportunities for people from poorer backgrounds: journalism in the mid-20th century; finance in the 80s; and IT in the 90s. When industries are stagnating, however, bosses don't need bright young things and so can instead hire their cronies.

And another symptom is the increase in fraud. Because it's no longer so easy to make profits honestly, more people are doing so dishonestly.

Exactly why we've fallen into this stagnation is a matter of debate: an ageing population; legacy of the financial crisis; lack of innovation; falling profit rates; and so on. For my purposes now, however, this debate doesn't much matter. What very much does matter is the fact that the economy is stagnating.

And this has numerous political effects. One is the rise of far-right views. Back in 2006 Ben Friedman wrote:

The history of each of the large Western democracies – America, Britain, France and Germany – is replete with instances in which [a] turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation.

And Markus Brueckner and Hans Peter Gruener have shown that "lower growth rates are associated with a significant increase in right-wing extremism". Subsequent evens have proved this correct. When Suella Braverman claims that the anti-muslim views of people like Douglas Murray are "mainstream", she fails to add that, insofar as this is the case, it is because stagnation has driven some people to the right.

Brexit was another effect of stagnation. I'm not just thinking here of the fact (documented by Thiemo Fetzer) that a weak economy bolstered the Leave vote. I'm thinking also of the right's motives for wanting it. The thing is that since the 80s they had been given everything they wanted; lower taxes, privatization, weaker unions and so on. And the result was still a sclerotic economy. Rather than question their entire worldview, they looked for another scapegoat - and the EU was the obvious one. Hence talk that Brexit would lead us to "sunlit uplands".

Yet another effect is the cronyism surrounding the government's procurement of PPE during Covid. Such egregious corruption did not occur under Thatcher or Major. The change is not because people have had a bang on the head and become more dishonest. It's because it's harder for companies to make money honestly in a competitive market and so they must resort to exploiting political contacts. In the 80s, capitalists could say to governments: "give us weak unions and low taxes and we can make money". Today, they cannot say that and must use government more directly.

A further symptom of stagnation is Labour's talk of NHS reform. This is partly motivated by the trivial fact that in a stagnant economy devoting more resources to the NHS requires either tax rises or spending cuts elsewhere. These are difficult choices which the party would like to dodge by thinking that it can raise efficiency - oblivious to the evidence that two decades of reforms have done little to achieve this.

But there's another motive. Except for a few monopolies and crony businesses, capital cannot make easy profits. Boosting profitability therefore requires an expansion in the number of spheres where capital operates - in Marxian terms, it requires a larger realm of commodification. NHS privatization offers just this. It's for this same reason that the political class (though not the public) supports private ownership of utilities and railways, oblivious again to the evidence of their nugatory public benefit.

It's in this context that we should also interpret attacks on benefit claimants. The combination of near-full employment which has strengthened labour's bargaining power and an inability to raise productivity means that (outside of a few monopolies) capital cannot raise profits by increasing the exploitation of its existing workers. An alternative, therefore, is to increase the number of workers who can be exploited - which is another way of increasing the realm of commodification.

One further political effect of stagnation is the rise of culture wars. Because stagnation, as Friedman showed, promotes reaction and illiberalism, it creates a constituency amenable to whines about "wokesters." Also, though, much of the political class wants a culture war because it has no economic ideas: as Stian Westlake has said, the Tories have stopped thinking about economics.

This is not to say there are no answers to stagnation even within neoliberal thinking . The problem is that such answers require governments to attack vested interests: nimbys will fight planning reform; incumbent firms don't want tougher competition policy; lawyers and accountants will oppose tax simplification; and much of the finance sector doesn't want the higher real interest rates that would follow stronger trend growth. Pro-market - let alone pro-socialist - policies would in this context be revolutionary. Why not take the easy option instead?

In saying all this, I'm not accusing our political class of an intelligent choice of responses to stagnation. Instead, I'm saying that politics is sometimes like natural selection in biology, where the environment selects in favour of some random unintended mutations. Culture wars, cronyism, commodification and a lack of ideas that would disturb the existing order are all things for which our present capitalist environment selects.

It's commonplace to bemoan the corruption and vapidity of Westminster politics. What we must appreciate, however, is that these things are products of the state of the economy.

Comments

[ltr]

One further political effect of stagnation is the rise of culture wars. Because stagnation, as Friedman showed, promotes reaction and illiberalism, it creates a constituency amenable to whines about "wokesters." Also, though, much of the political class wants a culture war because it has no economic ideas: as Stian Westlake has said, the Tories have stopped thinking about economics....

[ Really important observation and insight, but I am startled at the leadership of Labour having stopped thinking about economics as well. ]

[Boy]

It looks like any economic growth will be at the cost of other parts of our wealth portfolio. Frack and wreck acquifers, build and ruin the countryside, etc. I’m not convinced there are easy answers here, Chris. Least not, answers which don’t create nasty trade-offs for people who won’t be compensated for their loss.

[Blissex]

«Today, however, the defining feature of capitalism, and especially British capitalism, is stagnation.»

As usual our blogger when he talks about austerity or low growth seems to me to be hallucinating or repeating right-wing propaganda, that "we are all in the same boat" and everybody is sharing misery.

If the Conservative and LibDem governments of the past 13 years had been just distributing misery to everybody, how could they have dramatically increased their votes in 2017 and 2019? Are 14 million voters going to vote for more misery?

By using overall averages our blogger is spreading the hallucination of overall "austerity" or "stagnation", but in the actually existing UK a large part, the one that matters (tory voters), of the UK economy has been booming for 40 years, even if the majority has been stagnating or shrinking. The living standards and wealth of the upper and upper-middle classes has been doing well, and the lower middle (at least in the south) has been doing somewhat well too.

When I visit the Waitroses and M&Ses of the south-east in particular I don't seem them empty while everybody is selling shoestrings and apples at street corners, I see them packed with affluent, comfortable spenders. Surely that is not what happens in most of the "pushed behind" areas, but they just don't matter.

What has been happening for 40 years is *upwards redistribution*, not fantasies like widespread "austerity" or "stagnation".

Of course property prices have been reverting a bit to trend, after rising very fast in 2021 and 2022, but overall "the economy" (that is "investors") is doing still well, powered by deeply negative real interest rates (which are however shrinking).

[Blissex]

«I am startled at the leadership of Labour having stopped thinking about economics as well.»

I see nothing of the sort: New Labour's leadership put economics at the centre of their electoral appeal, targeting NIMBYs, older mortgagees, affluent "centrist" voters.

https://www.theguardian.com/politics/2022/dec/22/labour-targets-new-swing-voter-middle-aged-mortgage-man
«Party sees identifying 50-year-old male home-owners as key to electoral success this archetypical voter as male, 50 years old, without a university degree but with a decent job in the private sector and, crucially, a homeowner with a mortgage.»

The attitude is not new:

http://www.theguardian.com/politics/2006/sep/27/uk.society
«We reach out not just to those in poverty or need but those who are doing well but want to do better; those on their way up, ambitious for themselves and their families. These are our people too. Not to be tolerated for electoral reasons, but embraced out of political conviction.»

[Blissex]

«like any economic growth will be at the cost of other parts of our wealth portfolio.»

Since Reagan and Volcker any growth in per-capita GDP has been considered the prime cause of "inflation", by making labour markets tight via the "wage-price spiral", and resulting in rising imports, The main strategies against that have been offshoring and immigration, and very expensive credit for productive (mass-employment generating) industry.

[rsm]

Did Volcker kill Cost of Living Adjustments because they worked in practice but not in theory? In short, what is wrong with wage-price spirals given real purchasing power stability?

How does Ben Friedman account for the explosion in the popularity of jazz (which was first sold as "race records" in the Great Depression? Is that rather a large counterexample to his cherry-picked narrative?

Why do economists ignore financial trading when talking of imports and exports, when the trade in financial goods dwarfs real goods exchange by a factor of ten, at least?

And lastly, may I fix the following passage for Blissex?

《What has been happening for 40 years is ~~*upwards redistribution*~~ money creation by, for, and of the rich, not fantasies like widespread "austerity" or "stagnation".》

[Reason]

Mmm... I'm not convinced of these arguments because
1. He doesn't provide evidence of falling profits
2. He ignores the role a massively increased credit in driving yields (not profit but yields) so low. Basically it the credit explosion that has made real investment look so unattractive.
3. He ignores the fact that productivity is not a real measure, because "value" is dependent on both distribution and on regulation. It is a case of the old diamonds and water paradox.