27 Jul 2021
There is an assumption that a crisis will lead to transformative change and yet we’ve learnt in recent decades that in western economies things tend to stay the same once the dust settles. But why is this?
Trinity Hall’s Dr James Wood suggests that our obsession with neoliberal ideas, which focus on controlling inflation above all else, could mean the legacy of the Covid-crisis is more of the same, but a little worse.
Despite what most of us would consider to be the unique nature of the pandemic and its transformative effect on our lives, the political forces which push economies like the United Kingdom and United States towards neoliberal policies are already back in play, defining a new crisis in terms of concerns of increased prices for the average person and lost jobs.
Although neoliberal policies have increased disparities in wealth between the richest and the poorest, the stability it offers as its core message is attractive to voters and therefore attractive to politicians when they construct their narratives of how we exit the current pandemic global crisis.
“At the moment we live in an era of a lot of political mistrust and polarisation and often that is used as a distraction by politicians to promote policies they want to put in place. People don’t often think about that – they have busy lives. But it’s important to understand the role of the media and the narrative of popular politics have in framing what a crisis is, to then be politically literate when it comes to looking at the solutions politicians offer us,” said James.
“Neoliberalism has become an academic swear-word and is often used on social media as an insult, but in strictly academic terms I give it a definition around a series of policies – if an economy is neoliberal it has certain, identifiable policies. I explain it to my students like this: they are broadly in favour of maintaining low and stable inflation; the state favours private actors and promotes private ownership of utilities and welfare provision like pensions; and neoliberal economies often use the state to promote private markets and look favourably on reducing welfare to encourage people into work.
“Obviously Covid has meant more Keynesian-style state-interventions have been adopted, such as furlough to avoid mass unemployment which would have caused huge social unrest and social decay when people couldn’t afford the food they need to eat etc. This also ensured businesses stayed afloat, but at some point, for the neoliberal economy, this has to end.
“So we need to transition from this crisis (a pandemic) to a new ‘crisis’, and neoliberal politicians will define this in terms of neoliberal policies. We are already seeing this with this crisis being defined in similar ways to the global financial crisis of 2008.”
Dr Wood argues that both US and UK politicians are already constructing the narrative of an economic crisis to allow them to reduce Government spending, with the main difference between the two being that the US is more up-front about it.
“The US has always been very sceptical about high levels of spending – for instance after World War Two, while the UK was and Europe were increasing Government spending with welfare development, the US notably moved away from this, what we might call, European-style Keynesianism. This is defined by strong state intervention in markets and comprehensive state welfare provision.
“In the US-view Government spending simply leads to people not wanting to work anymore; this motivates employers to offer increased wages to tempt them into work, which, in turn, leads to increased prices for consumers. Even so-called ‘left-wing’ media outlets in the US see things like this and are nervous of Biden’s (the US President’s) spending policies – they see them as likely to increase inflation and therefore a tax on the middle-class.
“While the UK is not as overt we do have a similar situation with Labour under Starmer using similar language – I’ve even heard one new Labour MP use the phrase that ‘there is no magic money-tree’ which is something straight from the mouth of Teresa May. So Labour are now looking to define the Conservative response to the pandemic through a neoliberal lens of fiscal irresponsibility, to recapture the central ground.
“There was an assumption after the Global Financial Crash of 2008 that there would be change. It showed that neoliberalism, like any system, has faults and they can be quite alarming, leading to increased inequalities, instability and polarisation.
“But neoliberalism works politically when offering solutions to voters for the ‘crisis’. It makes sense to voters: if you say that living costs will go up by ten percent per year people will react. If you are a voter then you see a solution to a problem that you’re very concerned about – that’s the attraction of this way of framing a crisis and is why we might lurch from crisis to crisis without ever changing.”
Dr James Wood is Director of Studies in History & Politics and HSPS (Human, Social and Political Sciences), as well as being a Tutor at Trinity Hall. He is a University Teaching Associate in Political Economy and a Fellow-Commoner at Trinity Hall.
The research this article is based on (The Coming Crisis of COVID Keynesianism) was co-authored by Dr Matthew Sparkes (Cambridge) and Dr Valentina Ausserladscheider (Vienna).
It was recently discussed at the SASE (Society for the Advancement of Socio-Economics) annual conference this July, and it will be presented again at the Cambridge Journal of Regions, Economy and Society conference on ‘The Regions, Economy and Society in the Post-Covid World’ in September.
All of Dr Wood’s work on Neoliberalism and Financialisation can be found on Google Scholar.