Contents
About the Author
Title Page
Dedication
Acknowledgements
1. The Revolution Will Not be Televised
2. Living in a Material World
3. Let Them Eat Cake
4. Manning the Door at the Private Sector HQ
5. Politics for Sale
6. Shop, Don’t Vote
7. All that Glitters . . .
8. Evangelical Entrepreneurs
9. Mother Business
10. Who Will Guard the Guards?
11. Reclaim the State
Notes
Copyright Page
For my late mother – Leah, my father –
Jonathan and sister – Arabel.
With deepest love and gratitude.
I would like to thank Professor Robin Matthews and Professor Debora Spar for their insightful comments on earlier drafts and unstinting support for the project and also Charles Hampden Turner, Professor Peter Nolan, Professor John Child, Professor Sandra Dawson, Christos Pitelis, Jamie Mitchell, Richard Symons, Tanya Schwarz, and Jamie Miller for their intellectual input.
Catherine Needham and Beth Ahlering for their excellent research assistance and enthusiasm for the project and also Angela Spatharou, Chryssa Kanellakis-Reimer, Christopher Garner, Robert Sabbarton, Nadia Kokourina, Becky Morris, Tom Gross, Raj Lalsare, Virginia Graham, Paul Davies, and Rob Koepp for their help on various chapters.
Gillon Aitken, David Lloyd and Samir Shah, for believing in me and the project in its most early days and Clare Alexander for providing me with support and care all the way through.
All those at Random House, especially my editor Ravi Mirchandani for helping turn my initial idea into a reality.
Julia Hobsbawm, Sir Martin Sorrell, Paul Spicer and John Lloyd for their encouragement. Len Blavatnik and Henry Porter for their overwhelming generosity and support.
Pat Lilley for keeping me organised, Andrew Flower for keeping me well, and Ralph Hancock for his eagle eyes.
My friends – who put up with the fact that they did not see me for months on end and not only rarely complained, but continued to phone. Especially Orson for making the writing period a magical time; Alexis for continuing to be an incredibly important part of my life and always being there when I need him; James for those special treats that did make the bad bits better; and Juliet for her kindness.
J-20. FOR THOSE in the know the acronym is easily decipherable: July 20, 2001, the call for action transmitted to hundreds of thousands at the click of a mouse. J-20 – Genoa.
I first learnt about the Genoa protests through the Net, as did most of those who gathered there. A chain letter sent to thousands and forwarded to thousands more eventually reached me. Cyberwar with a clear message: be there, if you think that globalisation is failing. Be there if you want to protest against global capitalism. If you think multinational corporations are too powerful. If you no longer believe your elected representatives will listen. Be there if you want to be heard.
On 20 July Genoa was host city to the G8 annual summit, and the place to be for the ‘veterans’ of Seattle, Melbourne and London’s City and Parliament Square riots, for the veterans of Washington, Prague, Nice, Quebec, and Gothenburg (if ‘veterans’ is the appropriate term for a movement only a couple of years old). They flocked there in droves: pink fairies in drag, red devils handing out Boycott Bacardi leaflets, Italian anarchists in game-show padded body armor, environmentalists with mobile phones, suburbanites with cameras snapping as if they were on a day trip to the big city – a babel of different languages and different objectives gathered under the one ‘anti’ banner.
I was prepared for the tear gas: I had read the California-based Ruckus Society handbook, required reading for protesters, and had brought the requisite lemon and vinegar and a handkerchief to wrap around my face, as well as fake blood in a travelling shampoo container (good when you want to get let through a crowd). I was prepared for the police standoffs: I had studied the tactics of civil disobedience and direct action at the non-violence workshop I had attended earlier that year in a hangar-like meeting place on the north-west outskirts of Prague. Although nothing could have fully primed me for the brutality of the Italian police.
What I was not prepared for was the extent of the sense of community among the divergent and often conflicting interests, the sense of camaraderie and unity around a shared opposition to the status quo. Neither was I prepared for the sheer rage, inflamed by the insistent drumming and by the mournful wailing of the rainbow-stringed whistles sold at a dollar a piece; the black bloc anarchists intent on smashing shop front windows; the focus of many around me on tearing down the fence that the Italian authorities had erected to keep the world leaders in and the world protestors out.
Least of all, perhaps, was I prepared for the extent to which those I spoke with were utterly disillusioned with politics and politicians, corporations and businesspeople alike, and the lengths to which they were prepared to go to break what they saw as a conspiracy of silence. The bare chested young man with arms splayed in the sign of a pacifist, who remained upright despite the fire of a water cannon pounding against his back; Venus, the girl with pink hair and glitter stars stuck on her eyes, who told me in a soft Irish lilt that she was ‘willing to die for this cause’.
Ten years after the tanks last drove on to Red Square, twelve years after the Berlin Wall came down, after the longest period of economic boom in modern times, dissent is nevertheless growing at a remarkable rate, voiced not only by the hundreds of thousands who gathered in Genoa or Gothenburg, Prague or Seattle, not only by the rainbow warriors, but by disparate and often surprising parties – ordinary people with ordinary lives, homemakers, schoolteachers – suburbanites and city dwellers too. All over the world, concerns are being raised about governments’ loyalties and corporations’ objectives. Concerns that the pendulum of capitalism may have swung just a bit too far; that our love affair with the free market may have obscured harsh truths; that too many are losing out. That the state cannot be trusted to look after our interests; and that we are paying too high a price for our increased economic growth. They are worried that the sound of business is drowning out the voices of the people.
The fairy tale ending of the story that began in Westminster on 3 May 1979, the day Margaret Thatcher came into power, and was later reproduced in the United States, Latin America, East Asia, India, most of Africa and the rest of Europe – the story of the streets being paved with gold, and the realisation of the American dream – is no longer taken for granted. Myths that were perpetuated during the Cold War era, out of fear of weakening ‘our’ position, are beginning to be debunked. Wealth doesn’t always trickle down. There are limits to growth. The state will not protect us. A society guided only by the invisible hand of the market is not only imperfect, but also unjust.1
We can date the beginning of this world, this world of the Silent Takeover, from Margaret Thatcher’s ascendency. The hairspray-helmeted Iron Lady proselytised a particular brand of capitalism with her compadre Ronald Reagan that put inordinate power into the hands of corporations, and gained market share at the expense not only of politics but also of democracy. And it has been a durable product. Apart from a few discreet tweaks theirs remains the dominant ideology across much of the world. Politics in the post-Cold War age has become increasingly homogenised, standardised, a commodity.
Benetton provides an apt metaphor for politics today. Over the last eighteen years this Italian fashion company has run the most provocative advertising campaigns ever seen. Twenty foot billboards with the picture of a starving black baby; the AIDS victim at his moment of death; the blooded uniform of a dead Bosnian soldier; the ‘United Killers of Benetton’ campaign, a ninety-six page magazine insert with photograph after photograph of condemned prisoners languishing on America’s Death Rows. Benetton shocked us to attention, but shock is all it provided. It didn’t rally us into action. Nor did it try and address these issues itself. Their advertising provided no exploration of the morality of war, there was no attempt to relieve poverty or cure AIDS. The only goal was to increase sales, not to start a discussion of the issues behind capital punishment. And if it profited from others’ misery, so what?2
We are living in a Benetton bubble. We are presented with shocking images by politicians who try to win our favour by demonising their opponents and highlighting the dangers of other parties – remember the Conservatives’ highly controversial ‘demon eyes’ campaign prior to the 1997 election which put a photograph of Tony Blair with red satanic eyes above the slogan, ‘New Labour, New Danger’. They speak of making a difference and changing our lives. Different parties offer us supposedly different solutions and choices: conservatism, republican values, the Third Way, all in an attempt to secure our votes.
But the rhetoric is not matched by reality. The solutions our politicians offer are as bogus as those of Benetton: a Chinese girl standing next to an American boy, a black woman holding hands with a white woman. Models with unusual faces, strong faces, sometimes beautiful, sometimes not. Multicoloured people in multicoloured clothes.
Political answers have become as illusory as the rows and rows of homogenised clothes, standard T-shirts and cardigans, folded in your local Benetton store. High-street conservatism and conformity par excellence. The Third Way? The Third Coming is more likely. Politicians continue to offer only one solution: a system based on laissez-faire economics, the culture of consumerism, the power of finance and free trade. They try and sell it in varying shades of blue, red or yellow, but it is still a system in which the corporation is king, the state its subject, its citizens consumers. A silent nullification of the social contract.
But, I will argue, the system is undeniably failing. Behind the ideological consensus and supposed triumph of capitalism, cracks are appearing. If everything is so wonderful, why, as we will see, are people ignoring the ballot box and taking to the streets and shopping malls instead? How meaningful is democracy if only half the people turn out to vote, as in the Bush-Gore American elections, even though everyone knew it was going to be a close race? What is the worth of representation if, as I will show, our politicians now jump to the commands of corporations rather than of their own citizens?
It took time for people to rise up in protest, to see that the weightless state was unlikely to deliver the clean safe world that they wanted their children to grow up in. For a long time people didn’t question the one-ideology, homogeneous world. Why should they? For many, life was good and getting better. For most of the past twenty years the stock market has risen and interest rates fallen. More people than ever before own their own homes. Two thirds of us, in the developed world, have television sets of our own.3 Most of us, in the West that is, have cars. Our children wear Nike and Baby Gap. The middle class has grown and grown.
We are drip-fed images that reinforce this capitalist dream. Studios and networks beatify the very essence of capitalism. Prevailing norms and mainstream thoughts are recorded, replayed and reinforced in Technicolor, while any criticism of the orthodoxy is consciously quashed. The peaceful element in the protests of Seattle, Gothenburg and Genoa hardly made it to our screens. Procter & Gamble explicitly prohibits programming around its commercials ‘which could in any way further the concept of business as cold or ruthless’.4 Programmes are sought that reinforce the advertisers’ message. ‘Each time a television set is turned on, the political, economic, and moral basis for a profit-driven social order is implicitly legitimised.’5
In 1997 Adbusters,6 a Canadian ‘culture jamming’ organisation, tried to air a counter-consumerism ad in which an animated pig superimposed on a map of North America smacked its lips while saying, ‘The average North American consumes five times more than a Mexican, 10 times more than a Chinese person, and 30 times more than a person from India . . . Give it a rest. November 28 is Buy Nothing Day.’ But US stations such as NBC, CBS and ABC flatly refused to run it, even though the funding for it was there. ‘We don’t want to take any advertising that’s inimical to our legitimate business interests,’ said Richard Gitter, vice-president of advertising standards at the General Electric Company’s NBC network.
Westinghouse Electric Corp’s CBS went even further in a letter rejecting the commercial, justifying its decision on the grounds that Buy Nothing Day was ‘in opposition to the current economic policy in the United States’.7
Such is our legacy. A world in which consumerism is equated with economic policy, where corporate interests reign, where corporations spew their jargon on to the airwaves and stifle nations with their imperial rule. Corporations have become behemoths, huge global giants that wield immense political power.
Propelled by government policies of privatisation, deregulation and trade liberalisation, and the advances in communication technologies of the past twenty years, a power shift has taken place. The hundred largest multinational corporations now control about 20 per cent of global foreign assets; fifty-one of the hundred biggest economies in the world are now corporations, only forty-nine are nation states.8 The sales of General Motors and Ford are greater than the GDP of the whole of sub-Saharan Africa; the assets of IBM, BP and General Electric outstrip the economic capabilities of most small nations; and Wal-Mart, the US supermarket retailer, has higher revenues than most Central and Eastern European states including Poland, the Czech Republic, Ukraine, Hungary, Romania and Slovakia.9 The size of corporations is increasing. In the first year of the new millennium communications giant Vodafone merged with Mannesmann, pharmaceutical conglomerate Smith Kline Beecham with Glaxo Wellcome and internet service provider AOL with media corporation Time Warner. 5000 mergers in total in 2000 – double the level of a decade earlier. These mega-mergers dwarfed the M&A activity of the 1980s. Each merger seems bigger than the one before, and governments rarely stand in the way. Each new merger gives corporations even more power. All the goods we buy or use – our petrol, the drugs our GPs prescribe, essentials like water, transport, health and education, even the new school computers and the crops growing in the fields around our communities – are increasingly controlled by corporations which may at their whim choose to nurture, support or strangle us.
This is the world of the Silent Takeover, the world at the dawn of the new millennium. Governments’ hands appear tied and we are increasingly dependent on corporations. Business is in the driving seat, corporations determine the rules of the game, and governments have become referees, enforcing rules laid down by others. Portable corporations are now movable feasts and governments go to great lengths to attract or retain them on their shores. Blind eyes are turned to tax loopholes. Business moguls use sophisticated tax dodges to keep their bounty offshore. Rupert Murdoch’s News Corporation pays only 6 per cent tax worldwide; and in the UK, up to the end of 1998, it paid no net British corporation tax at all, despite having made £1.4 billion profit there since June 1987.10 This is a world in which, although we already see the signs of the eroding tax base in our crumbling public services and infrastructure, our elected representatives kowtow to business, afraid not to dance to the piper’s tune.
Governments once battled for physical territory; today they fight in the main for market share. One of their primary jobs has become that of ensuring an environment in which business can prosper, and which is attractive to business. The role of nation states has become to a large extent simply that of providing the public goods and infrastructure that business needs at the lowest costs and protecting the world free trade system.
In the process, justice, equity, rights, the environment and even issues of national security fall by the wayside. Take the case of the Taliban – supported by the US until 1997 because of US oil company interests, despite the regime’s dismal human rights record. Social justice has come to mean access to markets. Social safety nets have been weakened. Union power has been smashed.
Never before in modern times has the gap between the haves and the have-nots been so wide, never have so many been excluded or so championless. Forty-five million Americans have no health insurance. In London, car windscreen washers armed with squeegees and pails of dirty water ambush drivers at traffic lights, while in Manhattan people fish empty drink cans from bins, to claim their five cents redemption value. Americans spend $8 billion a year on cosmetics while the world cannot find the $9 billion the UN reckons is needed to give all people access to clean drinking water and sanitation. The British Labour party has gone on record as saying that wealth creation is now more important than wealth redistribution.11
In America during the ten years from 1988, income for the poorest families rose less than 1 per cent, while it jumped 15 per cent for the richest fifth. In New York the poorest 20 per cent earn an annual average of $10,700, while the wealthiest 20 per cent earn $152,350.12 Wages for those at the bottom are so low that, despite the country’s low unemployment figures, millions of employed Americans and one in five American children are living in poverty.
Capitalism has triumphed, but its spoils are not shared by all. Its failings are ignored by governments which, thanks to the very policy measures they introduced, are increasingly unable to deal with the consequences of their system.
And that system is rotten. Political scandals are unveiled all too frequently: Kohl, Schmidt and Mitterrand are among those we already know or suspect. Even those politicians not on the take are increasingly indebted to or enmeshed with business. Nowhere is this more apparent than in the United States. Clinton’s presidency was immersed in scandal at once: from the Whitewater allegations, via overnight stays in the Lincoln bedroom for party funders, to the final act of pardoning tax evader and arms dealer Marc Rich. For candidates for the 2000 American presidential elections, their very ability to run depended upon their securing corporate funding. George W. Bush’s campaign war chest was $191 million13, Gore’s $133 million. And objections to the McCain-Feingold bill on campaign finance reform, which if passed would ban businesses, trade unions and individuals from making unlimited ‘soft money’ contributions to US political parties, came from both Democrats and Republicans.
No wonder the politicians’ star is fading. People recognise politicians’ conflicting interests and unwillingness to champion them, and are beginning to abandon politics en masse. The British Women’s Institute – the very symbol of comfortable Middle England – battled the Sainsbury supermarket chain over GM foods, but also slow-handclapped Blair. Whereas the 1980s saw democracy emerging over the world as the dominant mode of government, imbued with a unique legitimacy and commanding mass support, by the 1990s voter turnout almost everywhere was falling, party membership declining and politicians were rated below parking wardens as worthy of respect.14 All over the world, from the old democracies of the United States and Western Europe to the young nations of Latin America and the Far East, people have less confidence in the institutions of government today than they had a decade ago. Only 59 per cent of British voters voted at the 2001 general election, down from 69 per cent in 1997, the lowest turnout since the war. In the USA, not in nearly two centuries have so many American citizens freely abstained from voting as in the past six years. The product sold by politicians is seen as broken, no longer deemed worth buying.
This is the world of the Silent Takeover I will explore in this book. My aim is to make sense of this world and understand where it is likely to take us: a world in which corporate resources dwarf those of nations, and businessmen outrank politicians; in which three quarters of Americans now think that business has gained too much power over many aspects of their lives;15 and in which, despite the ever harder sell of party politics, fewer and fewer trouble to vote. Economics is now accorded greater respect than politics, the citizen has been abandoned and the consumer is all that matters. ‘Participation in the market has [been] substituted for participation in politics.’16
My argument is not intended to be anti-capitalist. Capitalism is clearly the best system for generating wealth, and free trade and open capital markets have brought unprecedented economic growth to most if not all of the world. Nor is the book intended to be anti-business. Corporations are not amoral but, I will argue, they are morally ambivalent. In fact, under certain market conditions, business is more able and willing than government to take on many of the world’s problems. ‘Social responsibility’, ‘sustainable development’, ‘environmental impact’ are terms more likely to be heard today from CEOs than from government ministers.
Neither do I intend to glorify government. Although, as I will argue, the state has a clear role to play in society, I remain highly sceptical of government’s ability to play this role, especially now that the boundaries between business and government have blurred so much and there is such a lack of true political leadership or will.
What my book is intended to be, however, is unashamedly pro-people, pro-democracy, and pro-justice. I mean to question the moral justification for a brand of capitalism that encourages governments to sell their citizens for a song; to challenge the legitimacy of a world in which many lose and few win; and to reveal how the takeover endangers democracy, and to argue that there is a fundamental paradox at the heart of laissez-faire capitalism, that by reducing the state to its bare minimum and putting corporations at centre stage the state risks jeopardising its own legitimacy. I will explore the implications of a world in which we cannot trust governments to look after our interests and in which unelected powers – big corporations – are taking over governments’ roles, and examine the consequences of a political mindset which values the pursuit of market share above all else. I will chart the unfettered pursuit of profit, and confront those who justify pork-barrel politics as an expression of free speech, and those who justify non-intervention in other countries’ affairs for reasons of their own trade interests.
Over the last two decades the balance of power between politics and commerce has shifted radically, leaving politicians increasingly subordinate to the colossal economic power of big business. Unleashed by the Thatcher–Reagan axis, and accelerated by the end of the Cold War, this process has grown Hydra-like over the last two decades and now manifests itself in what are diverse positive and negative forms. Whichever way we look at it, corporations are taking on the responsibilities of government.
And as business has extended its role, it has, as we shall see, actually come to define the public realm. The political state has become the corporate state. Governments, by not even acknowledging the takeover, risk shattering the implicit contract between state and citizen that lies at the heart of a democratic society, making the rejection of the ballot box and the embracing of non-traditional forms of political expression increasingly attractive alternatives. Exploring these developments and their consequences will make up the body of this book.
My decision to write The Silent Takeover was not a disinterested one. I needed to make sense of my own growing discontent, my own feelings that things were going awry. How could it be that life had in many ways never been better, yet I and so many around me seemed so troubled? How was it that I, the daughter of a woman who devoted much of her life to putting women into politics, now saw politics as a co-opted, increasingly meaningless arena – a sideshow whose best act was the farce of the last US presidential elections? How could it be that ten years after landing in Leningrad to set up Russia’s first stock exchange – a travelling saleswoman with capitalism in my briefcase – I now felt a burning need to question its very tenets? Why was it that at Cambridge University’s business school, where I teach, when I made it clear that I was willing to supervise on the issues that this book examines, I was deluged with so many requests from students that I couldn’t possibly satisfy them all?
We stand today at a critical juncture. If we do nothing, if we do not challenge the Silent Takeover, do not question our belief system, do not admit our own culpability in the creation of this ‘new world order’, all is lost. As we shall see, inequality of income is bad not only for the poor, but for the rich too.17 The steady erosion of government and politics is dangerous for all, regardless of political persuasion. A world in which George W. passes law after law favouring the interests of big business, Rupert Murdoch has more power than Tony Blair, and corporations set the political agenda, is frightening and undemocratic. The idea of corporations taking over the roles of government might in some ways seem appealing, but risks leaving us increasingly without recourse.
The story will be told through a cast of characters that we shall meet on the way. Granny D, the 91-year-old grandmother who walked across America to champion campaign finance reform; Sister Patricia Marshall, the shareholder activist nun who persuaded PepsiCo to sell off its Burmese bottling plant; Oskar Lafontaine, the former German Finance Minister whose parting comment on his resignation was, ‘The heart is not traded on the stock market yet’. These are but a few of the voices we will hear.
But this book is not just the sum of their disparate stories, it is the sum of all our stories. We are all in the midst of a corporate takeover, and no gated communities or six-figure salaries will protect us from its impact.
My subject is how the Silent Takeover crept up on us, why it matters, and what we can do about it.
THE KINGDOM OF Bhutan, mythical Land of the Thunder Dragon, last of the independent Himalayan principalities, lies between Tibet and India. Wilfully isolationist, it has managed for centuries to follow its own path. Its population of around 600,000 is among the poorest in the world in terms of GNP per capita – average annual income is $550 – but this is a misleading picture, as it disregards the fact that more than 85 per cent of the population is involved in subsistence farming, and barter transactions are the norm. People in Bhutan are well fed and clothed, and homelessness is virtually non-existent.
‘Success’ here is determined on the basis of ecological, ethical and spiritual development; morality and enlightenment are valued above material wealth. Buddhist values are upheld and traditions maintained: the country’s 2,000 monasteries are active, and Driglam Namsha, the ancient code of conduct, remains part of the school curriculum. According to Bhutan’s king, Jigme Singye Wangchuk, ‘Gross National Happiness is more important than Gross National Product.’
The path of development has been carefully managed so as to remain consistent with the country’s integral belief system. Unlike its neighbour Nepal, which admitted 500,000 tourists in 1998, Bhutan took in only 6,000 that year; and each of them was provided with a strict code of conduct that included the prohibition of tipping and distributing sweets or pens to local children, to discourage begging.
Another significant generator of foreign revenue, commercial logging, has also been shunned because of the damage it would do to the environment – Bhutanese Buddhism lays great importance on ecology. As C. Dorji, the Minster of Planning, puts it, ‘We will not be rushed into an uncritical adoption of all things that are modern; we will draw on the experience of those who have trod the path of development before us, and undertake modernisation with caution at a pace consistent with our capacity and needs. We therefore seek to preserve our culture, traditions, value systems and institutions.’
But the tentacles of global capitalism are far reaching, and they reach even Bhutan which cannot escape the one-kilowatt broadcast signals that now bounce between the thousands of satellite dishes that have over the past few years been appearing between the prayer flags and prayer wheels that dot the landscape.
Already the impact of the West is apparent. Basketball has replaced archery as the national sport, thanks to the videotapes of NBA games that the king has shipped to him from New York. Boogie Woogie, a game show sponsored by Colgate, now rivals the panoramic Himalayan vista for viewers’ attention. Friends, Teletubbies, BBC and CNN entertain, inform and brief. Nightclubs intercut N’Sync and Britney Spears with 1980s Wham and Culture Club. A modern telecommunication systems has been put in place and e-mail is replacing letter-writing, despite the ten days of free mail service that Queen Tashi Dorji Wangmo Wangchuk, the eldest of the king’s four wives, offered the Bhutanese to combat this very development. Children now make pilgrimages to monasteries offering prayers and lighting butter lamps while clad in Spice Girls T-shirts. Farmers sell apples, oranges, potatoes and cardamom to their Indian and Bangladeshi neighbours for foreign currency; and there are twenty-five privately owned video stores in the capital city, Thimphu.
So even Bhutan, the last Shangri-La, is being infiltrated. Unable to resist the spoils of the West, unable to continue its isolationist policies, it admits Western influences. The situation raises many questions. How soon before the forces of globalisation and free market capitalism are irreversibly entrenched? How blindly will the population follow their leader once their eyes are opened to the multichannel, multiparty universe? Will Bhutan really be able to travel ‘The Middle Path’, a way forward that claims to be able to embrace modernity without compromising traditional ideology, or will the worship of Mammon and MTV culture fast replace the homage paid to the Buddha? Are the days of enlightenment and disregard of material success numbered, now that the Bhutanese will be able to see just how little they can afford relative to others? For how much longer will the king and his queens be able to continue to direct the economy and take responsibility for the welfare of their citizens’ lives?
If events elsewhere are anything to go by, probably not for very long.
But for now at least, the Bhutanese state remains the principal economic force (most of industry is state-owned) and also the main carer for the people’s welfare needs – roles the state played in Europe and America too for much of the past century, before the fundamental mindset shift of the 1970s and 1980s when the extreme version of laissez-faire capitalism epitomised by the American model became so dominant, before government fell in love with the free market.
By the end of the nineteenth century, governments in Europe and the United States had begun to accept that they had responsibilities beyond those of internal order and external security. There was a growing realisation that capitalism was responsible for great cruelties, and a sense that the state should play a role in alleviating the harshest elements of the system through some sort of social intervention. And this nascent feeling gained pace over the first half of the twentieth century, through the Wall Street crash and the Great Depression, then World War II, events which brought first mass unemployment, and then even wider human suffering.
In an attempt to address the needs of the poor, and at the same time stave off the threat of Communism1 – the Soviet Union was by now offering its citizens the most generous of welfare packages – by the middle of the last century most developed states had begun to establish systems of social security and welfare themselves. The components of the package differed between countries, varying from generous schemes for the redistribution of wealth to minimum provision against destitution. But most Western states offered subsidised access to education, health, housing and personal care services, alongside some form of income maintenance. The dominant mindset was that no citizen was to be allowed to fall below a minimum standard of overall well-being. In the UK, for example, between 1945 and the mid-1970s, the proportion of GDP spent on the main welfare services rose from just 5 per cent to around 20 per cent. Expenditure on the National Health Service rose from about £500 million in 1951 to £5,596 million by 1975.2 In the United States the expansion of social spending came later. It was not until the Kennedy and Johnson administrations (1961–68) that the state appeared truly willing to substantially enlarge its welfare provision. And only in 1964, in the midst of considerable prosperity and sustained economic growth, did President Johnson declare a ‘national war on poverty’.3
Not only did the state become the main provider of welfare during the post-war period, it also became the key economic actor. In Europe, even before World War II, countries had begun to nationalise industry, and this process accelerated after 1945. The electorate were now open to the thought of government controlling the ‘commanding heights’, for they had seen the effectiveness of state control of the wartime economy.
But owning industry was not enough. Post-war governments also felt it legitimate to play an active role in controlling the macro-economy and the market. The Bretton Woods agreement, signed by the leading industrialised nations in 1944, brought heavy regulation of financial markets. And neoclassical liberalism – a system that had largely left the market alone to regulate economic life – was displaced, in the West at least, by Keynesian economics.
John Maynard Keynes believed that governments could and should intervene in the economy, and evolved a wholly new model that approached the economy from the direction of money and finance. He argued that the economy has no natural tendency to create full employment, so if self-regulation cannot deliver jobs, governments must intervene to provide them. Since depressions result not from spending too much but from spending too little, government spending must be key. His doctrines, conceived in the aftermath of the Wall Street crash and the Great Depression, called for governments to sustain aggregate economic demand and full employment, within the context of a mixed economy and a welfare state. They fitted the moment. The potential for big government to be a force for good had been demonstrated during the war. The social cohesion implied by full employment and an extensive welfare system matched the prevailing mood for stability and security in the hard-won peace.
By the end of the 1940s the British Labour government had fully embraced Keynesian economics. In the United States, the 1946 Employment Act committed government to the goal of full employment, although it was not until the 1960s that Kennedy and Johnson moved to an explicitly Keynesian programme. Other Western countries, rebuilding their economies after the war, and heavily dependent on American aid, soon adopted a similar model: a large welfare state, state ownership of major industries, and interventionist government. Much of the developing world also embraced state-dominated development strategies.
Things began to change at the end of 1973 when the world’s major Arab oil-producing states formed a cartel, OPEC, and sent oil prices skyrocketing. With surging oil prices came an upward spiral of prices and wages, triggering economic recession, unemployment and price inflation of over 20 per cent in several countries, and the widespread inability of Third World countries to service their debt.
The prevailing doctrine of Keynesianism, which had been so successful in the preceding thirty years, proved unable to cope in these times of trouble. Not only could it not offer any remedy, many believed that it had caused the crisis in the first place. In any case, events made nonsense of one of Keynesianism’s most basic tenets: that inflation could not rise at the same time as unemployment. So a new solution was called for as governments came to believe that ‘the problem lay not in the inefficient management of the prevailing consensus, but in the consensus itself.’4
The new economic conditions triggered by the oil crisis demanded a new style of management of the economy: fiscal restraint and control of the money supply. Overnight, almost all Western countries’ finance ministers could be heard talking about the need to fight inflation and to rein back the public sector. The providers of loans to countries in crisis made the embracing of this new ethos a condition of providing funds. In Britain, when the Labour Chancellor Denis Healey was forced to turn to the International Monetary Fund for a loan in 1976, the reduction of public spending and tight control over inflation were conditions of the IMF’s aid.
From that moment Keynesianism, and with it big government, were dying if not already dead. The Prime Minister, James Callaghan, delivered its epitaph in a speech at the Labour Party conference later that same year: ‘We used to think you could spend your way out of recession and increase employment by . . . boosting government spending. I tell you in all candour that that option no longer exists.’5 In the United States, President Carter was reaching the same conclusion, cutting public spending in an attempt to stimulate the economy.
So by the late 1970s Keynes, a man whose teachings had been adopted wholesale by the West in an attempt to rebuild a world shattered by war and establish a secure capitalist bloc as a bulwark against Communism, was relegated to a footnote in history. Yet despite the abandonment of Keynesianism, it took a few more years for a new form of capitalism with a distinct ideology to triumph. During the Callaghan and Carter administrations, the idea still prevailed that the state existed to resolve contradictions within the market, and was a force for good in the economy.
The watershed came in 1979 and 1980 with the election first of Margaret Thatcher and then of Ronald Reagan – politicians from the New Right, who enthusiastically advocated the free market and were determinedly hostile to the concept of an interventionist state. Rejecting Keynesianism, the grocer’s daughter and the Hollywood actor embraced the views of economists such as Milton Friedman and Friedrich Hayek. These economists didn’t dispute that markets could and did fail; but they believed that the free market was capable of allocating goods and services more effectively than the state could, and that government attempts to combat market failures did more harm than good. They harked back to the ideas that had shaped economic policy from the Victorian era through to the Wall Street crash, that ‘The role of the state was to enforce contracts, to supply sound money . . . to ensure that market forces were not distorted’6,7 and, essentially, to provide the best environment for business to flourish, evoking memories of the 1920s US President Calvin Coolidge’s dictum, ‘The business of America is business.’
The extent to which this new religion embodied a coherent ideology, a creed of Reaganism or Thatcherism which could be adopted by other states, remains a matter of dispute. The two leaders’ goals and priorities were often different. Thatcher adopted monetarism – emphasising tight control of the money supply – whereas the Reagan administration was dominated by supply-side economists, who advocated tax cuts to give the greatest incentive to production. But there were themes running through the policies of Reagan and Thatcher that gave a discernible character to their politics, and made it possible to identify their followers in other countries. Their views are easiest to define in the negative: as a rejection of all the pillars of the post-war Keynesian consensus. In place of the goals of full employment and a generous welfare state, the New Right favoured the reduction of inflation and cuts in public spending8 (which they regarded as a major cause of the current economic malaise); rather than a mixed economy, they wanted the state cut back to its core, with many of its functions privatised or contracted out.
The New Right felt that too much had been expected from government in the post-war period. Its view was that the role of government should be to alleviate the worst evils of the human lot and provide a framework within which people and communities could pursue their various goals – not, as in previous decades, to positively guarantee general welfare.9 John Moore, Thatcher’s Social Services Secretary, explained in 1987: ‘For more than a quarter of a century after the last war public opinion in Britain, encouraged by politicians, travelled down the aberrant path towards even more dependence on an even more powerful state. Under the guise of compassion people were encouraged to see themselves as “victims of circumstance”.’10 According to the New Right, the welfare mentality had bred indolence and dependency.
Under these new leaders there was a clear shift of priorities. Interdependence was replaced by independence and egalitarianism was rejected on ideological grounds: the state was no longer to have a role to play in redistributing wealth.11 Relative standards of poverty were deemed irrelevant; poverty was to be defined by absolute standards of need. As Thatcher argued in 1985, ‘You are not doing anything against the poor by seeing that the top people are paid well.’12 And the state no longer accepted responsibility to provide unquestioning support for those who for whatever reason were denied an ability to be productive. In 1981, in the aftermath of the Brixton riots, Norman Tebbit, the then Secretary of State for Employment, made the infamous assertion that ‘My father didn’t riot but got on his bike to look for work.’13 ‘Get on your bike’ became the moral imperative of Thatcherism.14
And greed was declared good. Oliver Stone’s Wall Street, Tom Wolfe’s The Bonfire of the Vanities, Martin Amis’s Money and Michael Lewis’s Liar’s Poker faithfully chronicled the times. Power dressing and padded shoulders clad those aspiring to partake in the capitalist dream. Economists of the Chicago school wrote of man as a selfish utility maximiser and, almost in a self-fulfilling prophecy, Homo economicus, or economic man, was born.
The new Conservative government of Margaret Thatcher abandoned the ambitions of both the Labour and Conservative governments of the 1950s and 60s, jettisoned the government’s commitment to sustain full employment, celebrated the virtues of private rather than public provision, and set itself to reduce the burden of social expenditure which, it argued, had seriously eroded those economic incentives which alone made sustained economic growth possible.15,16 The private sector was to be set free, and the state was to be rolled back.
In the UK the ‘family silver’17 was sold off as Thatcher came to see privatisation as the main cure for the ills of the British economy as well as a convenient way of balancing the budget. A massive sale of assets from the public to the private sector was conducted during the eighties and nineties with the Conservative government raising £67 billion18 between 1979 and 1997.19 While ‘in 1979 government institutions owned much or all of coal, steel, gas, electricity, water, railways, airlines, telecommunications, nuclear power and shipbuilding, and had a significant stake in oil, banking, shipping and road haulage. By 1997, nearly all of this was in private hands.’20 Nigel Lawson, the then Secretary of State for Energy, summed up the party position, with his argument in 1982 that ‘no industry should remain under state ownership unless there is a positive and overwhelming case for it so doing.’21
Steps were taken to create an economic culture that rewarded enterprise and innovation. Rates of corporate and individual taxation were reduced; price, dividend and foreign exchange controls were removed with no thought for the vulnerable state in which this would leave the nation. At the Bank of England thousands of people lost their jobs. Restrictions on bank lending and hire purchase were abolished. Controls over broadcasting, telecommunications, transport and advertising were withdrawn. Right-to-buy schemes for council houses were set up, and shares, not least in the formerly publicly-owned utilities, became available much more widely than before. In 1979, there were four times as many trade unionists as share holders. Within a decade the latter exceeded the former.22 Capitalism was made ‘popular’ – everyone was to share Thatcher’s economic success.23 Anything or anyone that potentially stood in the way of this success came under attack. Regulation was dismantled, for it was seen as a stranglehold on corporations. The unions were attacked with ferocity, and held largely to blame for the poor economic performance of British industry. The denunciation of trade unionism became an article of faith on the New Right.
In the United States, the long period of increased involvement of the national government in domestic affairs that began with Roosevelt’s New Deal was now over, succeeded by the ‘New Federalism’.24 Reaganomics (and Thatcherism too) rested on a firm belief in the ‘trickle-down’ theory, which claims that if the rich are provided with incentives such as lower taxation, they will in turn have more incentive to act as entrepreneurs and so will boost growth and create jobs. Or that if public service industries are turned over to the private sector, they will be run more efficiently and provide more jobs for people who will then start disappearing off the welfare rolls.25 Providing incentives for the poor to work, such as making welfare less attractive, was also believed to boost economic growth. Eligibility requirements for benefits were tightened, and rights to food stamps and funds from AFDC (Aid to Families with Dependent Children) were withdrawn from some recipients.26 Unlike in Europe, public ownership had never taken off in the USA, so Reagan’s main tool of liberalisation was deregulation of the economy, a process kicked off by Jimmy Carter in the 1970s.27 The Reagan administration cancelled oil price controls, loosened restrictions over railroad transportation, broadcasting, and the oil and natural gas industries and was reluctant to enforce anti-trust legislation.28 Despite the fact that US trade union leaders had never wielded much political clout, Reagan echoed Thatcher in a strong commitment to curbing union power. Shortly after assuming office, he was confronted with a strike by the nation’s air traffic controllers. He promptly sacked them all, substituting military controllers and newly trained workers in their place.29
As well as making life considerably easier for the private sector, Reagan promised to ‘get government off the backs of the people’.30 Through tax cuts, he aimed to recreate the structure of incentives and rewards that had been frozen by the high-tax policies of his predecessors. The top marginal rate of income tax in the United States fell from 70 per cent to 28 per cent.31
By the early 1980s the role of government in England and America had fundamentally and irreversibly changed. Free enterprise was seen as the key to economic success, and the task of government was now ‘to create a framework in which individuals and groups can successfully pursue their respective ends’.32 David Stockman, Reagan’s Budget Director, said that ‘The . . . vision of a good society rested on the strength and productive potential of free men in free markets.’33 Successful and unfettered corporations would, it was believed, build the road to Nirvana.
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