11 August 2015

The rise of Jeremy Corbyn is the latest result of the bank bailouts


On September 20th and 22nd 2008, just after the US bank bailouts were announced, I wrote two blogs titled: “US Private Capitalism, RIP” and “A few casualties of the Credit Crunch”.  In these blogs I argued that the bank bailouts would undermine confidence in the moral and technical efficacy of Capitalism and would re-legitimize a form of politics that rejected markets, potentially reversing the pro-market drift of political opinion since the fall of the Berlin Wall.

That was what I said would happen.  But it is still extraordinary to see it in action.  In Britain we have looked on in recent years as anti-capitalist, anti-globalist parties have come to the fore in Greece and heavily influenced politics in France, Spain, Denmark and elsewhere.  But the closest we had come in Britain to a deep political reaction to the bank bailouts were Ukip and the SNP.

Now, with Jeremy Corbyn, we have something different again — something altogether more serious, more threatening and more legitimate (yes).

If the point of a capitalist society were that in the good times, those with money — by which I mean mainly ordinary savers with deposits in banks and ordinary folk with shares or investment funds or money invested in their houses, though also those with larger private wealth — if the point were that such folk made money on their investments when times were good and then when things went wrong they used their political influence over the state to bail them out, capitalist societies would be morally indefensible.  That would mean that being wealthy was not the result of good ideas, careful husbandry and the bearing of risk, but was instead a matter of brute political power.  The doctrines of markets and capitalism would be nothing more than an ideology the rich used to justify their power-based extraction of value from everyone else.

A classic critique of the hard left has always been that this is precisely the truth of “liberal capitalist” societies — that when push comes to shove they are not liberal or capitalist at all, for the rich will not be willing to allow themselves to lose out when they have made mistakes or been lazy or foolish.

In the bank bailouts, our civilisation has made that critique right.  There were four main ways we could go, politically, in response.  One would have been to say, effectively, “We are the powerful, and this is what we’ve chosen.  What are you going to do about it?” A second was to say that the bailouts were necessary but that it was morally wrong that we had got into the position that they were necessary, and that we shall introduce new policies to ensure that such bailouts are not necessary in the future.  This second has been the main governmental response in the US, UK and the European Union.  Many folk do not find it very convincing, though, and they are right not to. If we can use these new “bailin” mechanisms now and in the future, why could we not have used them in 2008?

A third response would be to repudiate the bailouts from the pro-market direction.  That was, by and large, the path taken by bailout rejectionists in the US, in the form of the Tea Party, and by quite a lot of the economics community.  In the UK there are a tiny number of vocal anti-bailout economists (though my experience of talking to economists privately is that the majority of them consider the bailouts unnecessary and morally indefensible, though practically effective), but there has been almost no political constituency for repudiating the bailouts.  The UK’s political right has preferred to be the friend of the rich to being the friend of market forces and capitalism.

I believe that UK voters would have listened to a political and moral critique of the bailouts from the right.  But having waited, and no such critique being forthcoming, many folk have eventually concluded that capitalism really is a power struggle dominated by the rich.  This has resurrected and relegitimized the politics of the hard left, the politics of Tony Benn and Jeremy Corbyn.

If high salaries and high investment returns were the product of free exchange, hard work, talent, and good luck, then most folk saw no problem in them.  If businesses moved around the country or moved internationally because that was what was most efficient or created the best opportunities, then good luck to the businessmen involved.  If some folk lost their jobs because those jobs had become technically obsolete in a dynamic and innovative world that would work to the benefit of ordinary consumers, giving them cheap goods and cool new gadgets, that was just the way of things.

But if all of these things — the high salaries bidding up house prices for our children, the business movements bidding down wages, the high unemployment zones with multiple generations of workless households — were not natural processes working to the general good but were instead power plays whereby value was extracted from the powerless, why should they be allowed?

Instead, key businesses will be owned by the state and run for the general good.  Instead, high salaries are to be taxed away to be shared with those from whom value was taken and who supplied the support when bailouts were needed.  Instead, disruptive financial forces will be tamed.  Instead, foreign takeovers will be disciplined and tested.

Many on the political right look on the rise of Corbyn with glee.  They say he will doom Labour to opposition for decades.  Perhaps — though Labour already seemed likely to be out for several more elections after its disastrous showing in May 2015, so that is less a Corbyn effect and more a post-Miliband / post-Brown effect.  It is not so obvious to me that Corbyn is that much less electable than his Labour alternates.  If we look around Europe, we see anti-system parties doing significantly better, in most countries, than anyone would have predicted before the bailouts.

The Conservatives were not in power at the time of the 2008/2009 bailouts.  They joined the consensus supporting those bailouts then, but in office Osborne in particular has set about a number of measures to try to make such bailouts less likely in the future.  Not enough, yet, but he has done something.  I would like to believe that it is politically possible to have a morally defensible capitalist society in Britain, in which the system does not exist to keep the foolish or unlucky rich rich at the expense of everyone else.  I agree with the Corbynistas and the hard left more generally that that is not the society we have had.  A key problem with the hard left is that its “solutions” to the moral problem it correctly identifies tend to make things even worse.

The bank bailouts have reinvigorated the anti-capitalist left.  Let us hope that the establishment does not err in bailing out the rich again.  Otherwise politics may splinter further, the hard left may win, and the supporters of the hard left may have the misfortune — with the rest of us — of discovering that a society of bailouts, albeit wicked, is not, alas, the worst that politics can be.

Andrew Lilico is Chairman at Europe Economics