Chris Dillow – The Politics of Stagnation

In a state of economic stasis politicians adopt policies that are regressive as they fear changing the status quo

Chris Dillow is an economics writer at Investors Chronicle. He blogs at Stumbling and Mumbling, and is the author of New Labour and the End of Politics.

Cross-posted from Chris’s website Stumbling and Mumbling


he government is changing the rules of the work capability assessment in an effort to push more people into work and thinking of cutting benefits. There’s a link between this and those incessant scam phone calls we all get.

To see it, remember a fact which most political journalists neglect because of their focus on the minutiae of Westminster court politics. It is that the nature of capitalism shapes politics. As the man said:

The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

So, for example, in the 50s and 60s Fordist capitalism required a mass market for consumer goods. That gave us a Butskellite consensus between the main parties upon the need to ensure full employment. But when profit margins were squeezed (pdf) in the 70s, capitalism required labour to become more quiescent. Which gave us not just Thatcherism but years of confusion and conflict in the Labour party as it debated how to react to those new times.

Today, however, the defining feature of capitalism, and especially British capitalism, is stagnation.

This stagnation isn’t merely a statistical artefact – two decades of sluggish growth in productivity, GDP and living standards. Its symptoms are all around us.

One is what Cory Doctorow has called the enshittification of the internet. Platform companies are no longer growing their customer base and so must instead monetize what used to be consumer surplus, with the result that “the surplus is handed to shareholders and the platform becomes a useless pile of shit.”

Another symptom has been the housing crisis. Slower growth has led to lower real interest rates which in turn has pushed house prices out of the reach of many young people; an asset price is simply the capitalization of future cashflows and so a lower discount rate (lower interest rate) means higher prices.

Yet another symptom is our (further) retreat from meritocracy. It is faster-growing industries that create opportunities for people from poorer backgrounds: journalism in the mid-20th century; finance in the 80s; and IT in the 90s. When industries are stagnating, however, bosses don’t need bright young things and so can instead hire their cronies.

And another symptom is the increase in fraud. Because it’s no longer so easy to make profits honestly, more people are doing so dishonestly.

Exactly why we’ve fallen into this stagnation is a matter of debate: an ageing population; legacy of the financial crisis; lack of innovation; falling profit rates; and so on. For my purposes now, however, this debate doesn’t much matter. What very much does matter is the fact that the economy is stagnating.

And this has numerous political effects. One is the rise of far-right views. Back in 2006 Ben Friedman wrote:

The history of each of the large Western democracies – America, Britain, France and Germany – is replete with instances in which [a] turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation.

And Markus Brueckner and Hans Peter Gruener have shown that “lower growth rates are associated with a significant increase in right-wing extremism”. Subsequent evens have proved this correct. When Suella Braverman claims that the anti-muslim views of people like Douglas Murray are “mainstream”, she fails to add that, insofar as this is the case, it is because stagnation has driven some people to the right.

Brexit was another effect of stagnation. I’m not just thinking here of the fact (documented by Thiemo Fetzer) that a weak economy bolstered the Leave vote. I’m thinking also of the right’s motives for wanting it. The thing is that since the 80s they had been given everything they wanted; lower taxes, privatization, weaker unions and so on. And the result was still a sclerotic economy. Rather than question their entire worldview, they looked for another scapegoat – and the EU was the obvious one. Hence talk that Brexit would lead us to “sunlit uplands“.

Yet another effect is the cronyism surrounding the government’s procurement of PPE during Covid. Such egregious corruption did not occur under Thatcher or Major. The change is not because people have had a bang on the head and become more dishonest. It’s because it’s harder for companies to make money honestly in a competitive market and so they must resort to exploiting political contacts. In the 80s, capitalists could say to governments: “give us weak unions and low taxes and we can make money”. Today, they cannot say that and must use government more directly.

A further symptom of stagnation is Labour’s talk of NHS reform. This is partly motivated by the trivial fact that in a stagnant economy devoting more resources to the NHS requires either tax rises or spending cuts elsewhere. These are difficult choices which the party would like to dodge by thinking that it can raise efficiency – oblivious to the evidence that two decades of reforms have done little to achieve this.

But there’s another motive. Except for a few monopolies and crony businesses, capital cannot make easy profits. Boosting profitability therefore requires an expansion in the number of spheres where capital operates – in Marxian terms, it requires a larger realm of commodification. NHS privatization offers just this. It’s for this same reason that the political class (though not the public) supports private ownership of utilities and railways, oblivious again to the evidence of their nugatory public benefit.

It’s in this context that we should also interpret attacks on benefit claimants. The combination of near-full employment which has strengthened labour’s bargaining power and an inability to raise productivity means that (outside of a few monopolies) capital cannot raise profits by increasing the exploitation of its existing workers. An alternative, therefore, is to increase the number of workers who can be exploited – which is another way of increasing the realm of commodification.

One further political effect of stagnation is the rise of culture wars. Because stagnation, as Friedman showed, promotes reaction and illiberalism, it creates a constituency amenable to whines about “wokesters.” Also, though, much of the political class wants a culture war because it has no economic ideas: as Stian Westlake has said, the Tories have stopped thinking about economics.

This is not to say there are no answers to stagnation even within neoliberal thinking . The problem is that such answers require governments to attack vested interests: nimbys will fight planning reform; incumbent firms don’t want tougher competition policy; lawyers and accountants will oppose tax simplification; and much of the finance sector doesn’t want the higher real interest rates that would follow stronger trend growth. Pro-market – let alone pro-socialist – policies would in this context be revolutionary. Why not take the easy option instead?

In saying all this, I’m not accusing our political class of an intelligent choice of responses to stagnation. Instead, I’m saying that politics is sometimes like natural selection in biology, where the environment selects in favour of some random unintended mutations. Culture wars, cronyism, commodification and a lack of ideas that would disturb the existing order are all things for which our present capitalist environment selects.

It’s commonplace to bemoan the corruption and vapidity of Westminster politics. What we must appreciate, however, is that these things are products of the state of the economy.

Thanks to many generous donors BRAVE NEW EUROPE  will be able to continue its work for the rest of 2023 in a reduced form. What we need is a long term solution. So please consider making a monthly recurring donation. It need not be a vast amount as it accumulates in the course of the year. To donate please go HERE.

Be the first to comment

Leave a Reply

Your email address will not be published.