The Big State Is Back, Baby

We are in a moment of epochal transition; a time when basic assumptions about the direction of society shared across the political mainstream, are radically undermined, forcing all actors to reposition themselves. Neoliberalism, and the long-held bipartisan consensus about the power of self-regulating markets have lost credibility and appeal after a decade of economic stagnation. Furthermore, coronavirus crisis has shown the folly of austerity cuts recommended by neoliberal economists and realised how its health and security depends on the state and public services. If the entrepreneur was yesterday’s solution to society’s problems, today’s is the “activist state”.

On both sides of the Atlantic and political spectrum, political leaders are promising to use the power of the state to rescue society from the pandemic, to safeguard jobs and protect industry. While for a long time we were told that the state was the enemy of the market, it now seems that politicians see state intervention as the necessary solution to the abysmal failures of market society.

This change in political common sense goes hand-in-hand with a shift in electoral strategy. If each political era has its own imagined typical voter, neoliberalism’s was the aspirational middle class. Yet as the neoliberal values of meritocracy and upward social mobility have lost their shine, politicians have begun to present themselves as the champions of the working and squeezed lower middle class. Think of Biden declaring himself “the most pro-union president you’ve ever seen”, or Johnson’s penchant for high-vis photo ops.

The returning focus of political propaganda to manufacturing and manual labour is in fact a corollary of the recuperation of state interventionism. In the 1990s and 2000s, under the aegis of the now mothballed World Trade Organization, low tariffs and open markets led to many industries being offshored, the idea being that rich countries should focus on high-value services and finance. The state was supposed to sit back and let market forces reshape the economy according to the iron law of international competitiveness.

Now, as the pandemic exposes the fragility of global supply chains, politicians on both left and right are pledging to reshore the heavy industry that will provide the steady jobs of the future to an increasingly restless working class. And are recuperating typical statist economic policies to facilitate this trend, from direct and indirect forms of protectionism (e.g. Biden’s “Buy American” public procurement rules) to industrial policy to develop new industries and even forms of planning as seen in climate targets for cars and the energy industry.

Yet while both left and right are gravitating towards state interventionism, there are major differences in their approaches.

Biden’s, spelt out in his Build Back Better vision and American Jobs Plan, is progressive liberalism in line with Roosevelt’s New Deal and Johnson’s Great Society. While some of his pledges are being blocked by moderate Dems in the Senate, this major investment in infrastructure and social care represents a sea-change in US policy-making.

The right is traditionally more cautious about state interventionism. As economist Michał Kalecki wrote in 1943, the capitalist class has traditionally been afraid of state meddling, for fear that it would snatch away their control. Still, in the post-war era, conservatives in the US and UK bought into elements of Keynesianism.

Boris Johnson is reviving this tradition, to the point of being accused by his former employer the Telegraph of “Chinese style state interventionism”. While clearly hyperbolic, it’s true that the PM has partly reneged on fiscal conservatism, slating £600bn (half from private sources) for infrastructure investments. Furthermore, Johnsons “levelling up” agenda is an admission of the failure of Thatcherite free-marketeering in the regions.

Though similarly heavy-handed, Biden and Johnson’s approaches have starkly different consequences for the rich. Key to Bidenomics is raising taxes – including corporation and income tax – on the wealthy. The aim is to moderately redistribute economic resources away from the wealthy and towards the rest of society, for an economy “from the bottom up and middle out” instead of “trickle down”. With Johnson, on the other hand, there is little talk of redistribution, but a repetition of the 2010s mantra of “we are all in this together”,. Don’t be fooled by the rise in corporate tax: the Tories’ project is firmly aimed at protecting the rich from redistributive demands.

The inequality Johnson wants to address is geographic, not social. His investment plan is focused on areas electorally important for the Tories, such as Blyth, home to the Britishvolt gigafactory, and a constituency the Tories snatched from Labour in 2019. The aim is to reintegrate in the capitalist market areas that were marginalised during the aegis of globalisation and where there is now potential for new profits.

Meanwhile, Johnson has reassured voters in the Tory heartlands of the south that his plans will not dent their fortunes, as already signalled in his “Levelling up” speech. His statism is truly conservative, aiming to maintain current level of ownership concentration and income distribution while making small concessions to working-class voters. The Tories may well have ditched their manifesto promise not to raise taxes – but their new taxation, such as the NI hike which hits 26 million UK workers to fund social care, is deeply regressive.

Labour has so far been unable to respond to this offensive. It has responded to Johnson’s big spending by presenting itself as the party of fiscal prudence, or by suggesting incremental increases to Tory spending, such as a 2.1% pay rise for nurses, rather than the government’s 1% pay (the unions are demanding 12%). As his recent interview with Sky’s Beth Rigby showed, Starmer can barely bring himself to say the words “wealth tax”, let alone outlined plans for the taxation of wealth to fund social programmes, as Biden has done.

To counteract the Tories’ offensive on its core electorate, Labour must follow Biden’s example and abandon the suspicion of state interventionism it has retained since the Blair years. Neoliberalism is dead, and the big state is back; unless the left learns to navigate this new landscape, the right will continue charging ahead.