The UK, in common with the rest of Europe, has swung sharply in the direction of state capitalism. Don Flynn argues that Labour has to push hard to ensure that full employment, a cooperative model for business and a strong voice for workers and communities becomes the direction of travel
Everyone seems to agree that there will be no reversion to normal when the Covid-19 crisis finally abates but there is less clarity as to what the new paradigm will actually look like. A deep recession is now regarded as certain, bringing with it the need for a further extension of state support for the private sector. Further of course, because capitalism in the economically developed regions has been on virtual life support for the last decade anyway.
With bank interest rates already scraping the floor and liquidity across the system being maintained by quantitative easing, the state prop has had the paradoxical effect of depressing GDP growth, flattening the rate of profit but giving a massive dividend to those lucky enough to have a substantial hold on appreciating assets. Meanwhile hourly wage rates for the majority of workers have seen no significant growth for over ten years and inequality across the system has been given an enormous hike.
Though the problems with this model are legion still the political class has not been able to find a way back to the supposedly virtuous free market, minimum state of its dreams. The idea that the Johnson government had a route in mind to get back there was given short shrift when Sajid Javid, so nostalgic for a return to Thatcherite economics, was sent packing from his job as Chancellor just days before delivering his first budget.
Johnson’s vision – even before the coronavirus forced a rethink – was for a return to economic growth based on a government investment bonanza in infrastructure that would provide the richest of pickings to corporate businesses. But the implications of the fight against the virus are that this hope for a new period of ramped up economic dynamism now has to be jettisoned. All the vastly increased budget spending since Rishi Sunak’s first stab at the figures on March 11th will go on the scaled-down project of just keeping the show on the road.
What this means will become all too clear in due course. Looming large on the horizon is the immanent collapse of hundreds of thousands of the small and medium-sized enterprises which the Tory-led governments have used to maintain employment at record-high levels since 2010. The bailouts of the months to come will take two forms: tax-breaks to help larger businesses stay the course and still be around in 2021, and a flood of cash into a hastily improvised social security system to support the unemployed.
In the examples provided by high growth rate developing countries in the far east we have become used to the idea of systems of state capitalism where the public sector has led the way to increased productivity and the opportunity for private companies to move in and make a profit. The Tory version of state capitalism is going to be very different from this. High-faluting ambitions for a leadership role for UK plc will give way to the scramble for survival by any means necessary.
Expect nasty stuff to attain this end. An angry, recently impoverished class of failed business owners will be available to rally to the xenophobic calls which blame foreigners and liberal internationalism for its predicament. For the Tories, escaping the extra debt the state has lumbered itself with requires highly discriminating policies which protect the spending programmes which are supported by the disappointed middle classes whilst cutting even deeper into those which support the living standards of low-wage earners.
These are the dangers which will come about if the left does not come up with a plan that points the way to a more just outcome. The central thrust of this will need to be the demand to maintain the level of full employment which has been the norm over the past decade. This will mean supporting both the public sector but also the smaller and medium-sized businesses which have provided the bulk of employment opportunities in recent years.
But support for these enterprises cannot be open-handed. Some of the worst employment practices have gone on in smaller businesses in recent years, with low wages and zero-hour contracts being rife. Labour should be making a bold commitment to the measures needed to prevent the wholesale collapse of the sector, but it should do so by seeking assurances that any financial support provided will be directed towards the protection of decent employment standards and a voice for the workforce in setting the direction for the business.
Labour should set three conditions for the support that the state should be offering to these businesses. The first is that they should open their books to inspection by auditors (and worker reps) who will need to be satisfied that the firm has a solid business plan that includes the proper remuneration of its workers. Second, that this commitment to workforce interests takes the institutional form of trade union recognition and structures which involve employees in management. Third, that the business operates in an honest fashion in ways that sustain the interests of workers and consumers across its trading network.
A state-directed form of capitalism will be the inevitable consequence of the coronavirus crisis. Labour must act to ensure this is not the Tory version of state capitalism by demanding an approach that maintains full employment and strengthens cooperative business models across the economy. The expansion of credit that will be needed in the coming months should not be permitted to flow selectively to unproductive projects that aim to keep an anxious population on board for insular, backwards-looking conservatism. If being “in this together” ever means anything, it will need to mean unabashed advocacy of a radical programme to redistribute both wealth and power across our disfiguringly unequal society.