This Age of Inflation Reveals the Disease Plaguing the British Economy: Rentier Capitalism | William Davies
IInflation in the UK is at its highest level in 40 years, thanks in particular to soaring energy and food prices. This fact sparked panic among some commentators and policy makers that Britain was on the verge of reviving the inflationary turmoil of the 1970s, and prompted Rishi Sunak to announce a last-minute £15 billion “cost-of-living package” funded in part by a one-time tax on energy companies. Andrew Bailey, Governor of the Bank of England, was already the object of outrage for suggesting that workers should show “restraint” in their wage demands, to prevent the escalation in wages and prices as we witnessed in the 1970s. Currently, with an inflation rate of 9% and employers expecting a wage increase this year of only 3%, Bailey should be able to relax on that front.
Regardless of inflation, the differences between the British economy of 2022 and the economy of 40 years ago are stark. In 1982, unemployment reached a post-war record, exceeding 3 million, with industrial employment declining. Today, Boris Johnson boasts a record low unemployment rate. Union coverage was still over 50% in 1982; Today, less than half of that is, and about half of that again in the private sector. The inability of most workers to collectively negotiate for a wage increase is one of the main reasons why Bailey seemed so far-fetched, and why comparisons with the 1970s didn’t get right.
We’re not seeing reruns of the 70’s and early 80’s. But there are other reasons to consider the relationship between the crisis now facing the Johnson government and that which Margaret Thatcher faced in her first term in office. Simply put, today’s crisis is a legacy of how the previous crisis was handled.
It is worth remembering that inflation represents The Challenging dominant economic policy during most of the 1970s. It was inflation that drove the historical calculation by Jim Callahan at the 1976 Labor Convention, heralding the end of the Keynesian consensus: “We used to believe that you could make your way out of recession, and increase employment by cutting taxes and boosting government spending. I tell you frankly that This option no longer exists.” Politicians and experts differed about the solution to the problem of inflation, but the urgent need to find a solution was widely accepted.
In the political imagination of the new right of the 1970s that emerged from the intellectual establishments on both sides of the Atlantic, the problem of inflation was linked to a whole host of broader social and moral crises: strong unions, an overly generous welfare state, a weakening of entrepreneurship, the disintegration of the family, contempt for capitalists. The common denominator of all these problems, from this perspective, is the failure to respect the ultimate value of money. Britain was beating inflation by rediscovering its respect for property, hard work, fiscal discipline and responsibility.
The drug Thatcher gave was a social destroyer. The monetarist doctrine, originally developed by Milton Friedman, which held that governments should target the amount of money in circulation and then set interest rates accordingly, caused interest rates to rise to such punitive levels that Britain entered the deepest recession since the 1930s. Inflation eventually declined, but only after industrial areas, towns, and cities were dragged along with it. The collapse of union membership was as much a consequence of the destruction of union jobs as it was of anti-union legislation.
What is the significance of this day? Referring to the turmoil of the time, many political economists have come to view cash as a deliberate political project that seeks to re-establish the dominance of asset owners and financial elites. After all, it was quite clear who suffered the most from inflation, and who would benefit most from getting rid of it: the creditors and the wealthy. It wasn’t until Thatcher choked life out of inflation (and much more) that the city and the housing market began their dramatic rise, and regardless of the vagaries of the John Major years and the banking crisis of 2008, it has continued ever since.
Viewed in this way, Thatcherism was never to “enterprise” or risk-taking, as its proponents had always claimed, but rather to unleash capital to chase the highest possible returns, regardless of any broader social or economic benefit. Socio-economic geographer Brett Christophers showed in his book Rentier Capitalism that the central effect of the Thatcherite reforms was to open up entirely new sources of income that owed little to productivity and much control over those who depended on income earners.
We can see this in outsourcing professionals like Serco and G4S who hover around government departments to secure lucrative long-term contracts, using legal force to shield themselves from any downsides; In private equity funds descending on primary care for adults and children to reap abnormal profits, largely by squeezing an already disadvantaged workforce. We can see this in the way home prices and rents have become completely unrelated to wages. Rent-seeking extends far beyond the realm of the ‘market’, to reaping revenue from – and raising the cost of – the basic necessities of life.
According to orthodox economic theory, profit is the reward that a business or investor receives for financial risk, including the risk of bankruptcy. But in a rentier economy like the British one, profits are assured, while risks are eliminated by just or unpleasant means. The 2008 bailout of banks that had become “too big to fail” was emblematic of this kind of pseudo-capitalism, in which massive rewards decouple from any real acceptance of risk. Likewise, now that the retail price of energy has been effectively set by Ofgem, soaring profits for energy giants such as Shell should be understood as official policy of the UK government, just as the house price inflation that followed the stamp duty holiday in Sunak. despite The one-time Sunak tax on energy companies mitigates certain effects of rentier power, and does nothing to weaken the basic shape of the economy.
Some critics question whether this economic model is considered “capitalist” anymore, seeing it as abandoning the risky, productivity-enhancing investments that have long been seen as hallmarks of capitalism. To be sure, the liberal language of “citizens” and “consumers”, and the “public” and “private” sectors, seems inappropriate to describe the cost-of-living crisis in which we are so entrapped by our payment obligations, living on the orders of companies that have no incentive Political or economic to serve our interests.
The state, in Thatcher’s view, came under the control of labor. Today, the problem is the opposite: the state now protects certain forms of capital at every turn, to the point that many corporations, trusts, and wealthy elites have forgotten the feeling of loss. Most of today’s inflation may be caused by geopolitical factors (the war and Brexit), but until a government is elected to represent the economically weak and take a stand against rentier power, living will remain just a costly exercise for many.