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Does Coronavirus spell the end for neoliberalism?

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In introducing his package of £350bn in government support on 17 March, the new Chancellor Rishi Sunak told a press conference that "this is not a time for ideology and orthodoxy”. Sunak, an Oxford PPE graduate, cannot really have believed that his measures were ideology free. He will no doubt have been aware of the famous dictum of John Maynard Keynes that “practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

In fact, Sunak was not heralding the death of ideology in general, but of one ideology in particular, that of neoliberalism, the creed which has dominated political and economic thinking, at least in the UK and the USA, since the 1970s. And he was, through a neat irony, enslaving himself, at least temporarily, to the intellectual influence of a not quite defunct economist, the great Keynes himself.

What is neoliberalism, and why is it now in retreat?   In 1992, the Globe & Mail of Toronto identified an ensemble of ideas which flourished under this umbrella: “privatization, deregulation, competitiveness, social-spending cutbacks and deficit reduction.” This policy platform was also christened, at about same time, the “Washington Consensus” by John Williamson (no relation), to describe a list of ten policies which “more or less everyone in Washington would agree were needed more or less everywhere in Latin America”.

Neoliberalism’s central demand was that the state should retreat. A sacred text in this regard was Ronald Reagan’s inaugural address, in which he rallied his conservative supporters with the assertion that “In this present crisis, government is not the solution to our problem, government IS the problem.”. And yet, in the current coronavirus crisis, it has turned out that government is the solution to our problem. If there have been voices urging a free market response to the virus, they have been very quiet. On the contrary, almost everyone seems to agree that the state should put its full weight behind efforts to defeat the spread of infection and that, in the economic sphere, the government should do “whatever it takes”.

Moreover, it has turned out that the “key workers” in this crisis are not the City Masters of the Universe, but (overwhelmingly) public sector workers, such as those employed in health and social care, childcare, local and national government, public safety and the like. And yet it is they – and the services which they provide – who have overwhelmingly borne the brunt of the ‘economy’ measures taken to balance the books after the 2008/9 financial crisis

What then of deregulation and competitiveness? One hallmark of these policies in the UK has been the creation of so-called “flexible labour markets”. The trade unions have been massively weakened. Work has become casual, with many employees dependent on the “gig economy”, zero hours contracts, or bogus self-employment. However, this now turns out to have significant disadvantages. Insecure workers, or the notionally self-employed, may well be tempted to report for work when ill because the ‘flexibility’ prized by those contracting their services has left them financially exposed as soon as their work ceases. Their compelling need to work has potentially disastrous consequences for wider spreading of the Covid-19 infection.

Likewise, “social-spending cutbacks and deficit reduction” have been the hallmark of the last decade of austerity. At the heart of this programme was an insistent narrative about the global financial crisis of 2008/9 and the large government deficit which ensued.  The core of the problem, according to the 2010-2015 Coalition government, was that the state had grown too large under Labour, and it was this extravagance which had led to an unsustainable deficit. It was necessary to take strong measures to avoid the fate of economies like Greece, which measures would principally involve cutting spending rather than increasing taxes.

However, the narrative applied to the current crisis is quite different. It is apparent that the economic consequences are going to be severe, with perhaps the deepest recession in a century, and this is bound to produce a large government deficit. Yet it appears that in 2020, unlike 2010, any such deficit is not the fault of the incumbent government for failing to mend the roof while the sun was shining. And the appropriate policy response is not austerity but massive government spending. The chair of the Office for Budget Responsibility, Robert Chote, has advised the Prime Minister that "now is not the time to be squeamish" about adding to the national debt to keep firms afloat: since “When the fire is large enough you spray the water and worry about it later".

The neoliberal platform has not been the preserve of any one political party. Certainly, the Conservatives have, at least until the Johnson premiership, enthusiastically subscribed to this platform. However, the Liberal Democrats have been equally committed to this approach, and without their staunch support, the Cameron/Osborne austerity programme could not have been implemented. Likewise, New Labour was largely content to live within the neoliberal policy environment which they had inherited.

Rahm Emanuel, Chief of staff to Barack Obama, observed in 2008 that “You never want a serious crisis to go to waste…[it] is an opportunity to do things that you think you could not do before.” If this was true in 2008, it may be even more relevant in 2020. Economic and social shocks often give rise to fundamental policy change: think of the Second World War or the 1973/4 oil price shock.

Of course, once the worst of the virus has passed, it may be that voters will conclude that they should return to the mixture as before. Or it is possible that the present crisis may accentuate trends towards protectionism, nativism and isolationism which have been evident in the USA, the UK and elsewhere. However, there must be at least some prospect that the electorate will wonder whether the techniques which are being adopted to wage war upon the virus may have some attractions in “peacetime” as well.

Please note: Views expressed are those of the author.

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