Thanks for the cash Rishi – now can we have an economy?

Don Flynn sees a form of state capitalism emerging requiring robust democratic responses

Chancellor Rishi Sunak apparently learnt the principles of political economy as a teenager, whilst doing the books for his mum’s pharmacy business. His gift for numbers – the more humungously large the better – must have been a great help in elevating himself into the fabulously rich bracket after his spell as an investment banker at Goldman Sachs and, later, as a hedge fund manager.  

Together with the measures offered up in his March budget, the total cost of the economic package assembled to both fight the coronavirus and prop up the economy is now in excess of £190 billion. Commentators have suggested that this level of spending places him in the ‘left wing’ bracket, leading to a degree of disquiet on Tory backbenches at the way years of policies geared towards austerity and budget balancing are being ripped up and thrown away.

But this all depends on what your definition of ‘left wing’ actually is. The simple fact that a government has been forced to use the capacity of the state to step in and keep things running during a period of massive market failure does not make a socialist – or even a social democrat – out of a plutocratic, Conservative politician. What is taking shape today is state capitalism, and we should not be frightened about naming it as such.

State capitalism on the rise

State capitalist regimes arise when the signals to be got from deals in the marketplace no longer provide sufficient information to direct profit-orientated economies. The idea of capitalism as a system defined by free markets is largely a myth in any event, since the bulk of economic transactions takes place within the corporate structures of transnational companies and entities dependent on public sector budget allocations. But there is a point at which the quantitative increase in government direction tips over into qualitative change, and a form of capitalism where the state assumes responsibility for investment and workforce planning comes into being. That is where we have got to with all the forms of government intervention that have been enacted since the onset of the health emergency.

State capitalist strategies in Britain have been attempted before, by governments of both left and right wing stripes. But, rather than provide the obvious solution to market failure, they generally fail for reasons which are strikingly similar – namely lack of democracy. They are elite projects which substitute the claimed expertise of technocrats for policies which ought to be guided by democracy and the active participation of the mass of the people.

Gaping holes

The flaws in Sunak’s interventions are already being identified by people with greater insight into the ways in which economies work on the concrete settings of an actual society. The Trades Union Congress has spotted the ‘gaping holes’ in the so-called Plan for Jobs, pointing out that it fails to provide a focus on the structural weaknesses of sectors which are going to be hit by the employment crisis. The retail sector, which employed close to three million people before the onset of the coronavirus pandemic, was already in a state of crisis before being hit by Covid-19. Hospitality, a sector of similar size in terms of employment, is plagued by low pay and insecure agency and part-time work at the best of times. The battle against the virus, likely to be ongoing for well into the future, is going to impose severe limitations on its capacity to provide decent jobs.

As far as reforming the structure of the corporate sector, Sunak has close to nothing to say. Vague suggestions that a Tory version of a ‘green new deal’ might be involved as a condition for bailouts lack the substance needed to lever real change out of companies which can be expected to resist anything that damages their ability to channel investment into enhanced dividends for shareholders.

Local authority crisis

Most critically, there is nothing in the plan for local authorities, the bodies closest to the communities hit hardest by the coming tsunami of job losses. The anticipation of council bankruptcies in the period ahead is more common than the conversation which is required: how local expertise can be fully utilised to get investment into the places where it is most needed and on terms where it can do most good.

In the context of the UK, state capitalism appears to be ridden with so many contradictions that it can only ever be transitional to something else. If left to prime minister Johnson and chancellor Sunak, that something is likely to be a return to the ‘old normal’ of an under-powered market-based system which has been more productive in producing inequality and hardship than a better standard of life.

The Labour Party will not be in power any time soon, but the challenge it should be throwing down to the government should in any event be to champion the role that democracy needs to play to get us beyond the crisis. Democracy in terms of imposing conditionals around the green new deal, excessive executive pay rises and shareholder payouts, and worker management, as part of the bailouts that will have to be given to corporations. Democracy in terms of empowering workers in jobs markets and workplaces, through unions and an advance towards worker control, to build decent jobs in place of exploitation into what comes after. And democracy in terms of local government, which can play the lead role in a new programme of home-building, planning the local environment, and providing the high-quality public services that need to be the future for us all.