A new capitalism for a new year

Nick Clegg has been going on lately about the need to occupy the ‘centre ground’, as if there were a big space between the Conservatives and Labour. But that hasn’t been the case since Margaret Thatcher and Micheal Foot battled it out thirty years ago.

Actually, the most striking thing about the three main parties, certainly since Tony Blair took over the Labour Party, is how close they are on matters of economics. None of the party leaders seriously questions the orthodoxy that took hold in the 1980s; indeed, they do not even recognise it as an ideology, preferring to see themselves as post-ideological pragmatists. Their argument is basically managerialist, about who can best manage the old orthodoxy rather than who has the best ideas for replacing it.

Whether the party leaders like it or not, the banking crisis of 2007/8 signalled that the dominance of the old orthodoxy is coming to an end. On The Browser, Anatole Kaletsky discusses the new capitalism that will replace it:

This crisis is going to be viewed as the fourth historic transition that capitalism has gone through since the modern market economy was created in the late 18th century. The argument that I make in my book on the crisis – perhaps one of the few predictions in it that has been fully realised – is that this was not just another financial boom and bust, nor a crisis in one particular country or one part of economy. This was, and still is, a crisis of the entire global economy of a kind that has only happened three times before.

I compare this crisis with the great inflation of the late 1960s and 1970s, which created a completely new form of capitalism – Thatcherism and Reaganomics were totally different from the Keynesian social democracy they replaced. The previous systemic transformation started with the Russian Revolution and culminated with the Great Depression. This also created a new form of capitalism, almost unrecognisable from the classical capitalism of the 19th century. And the systemic crisis before that was the one that created liberal capitalism in the first place – the American and French revolutions that broke down agrarian aristocratic economies and established the market-oriented capitalist globalisation that Marx so vividly described.

So in my view this is the fourth systemic crisis of capitalism, and it’s going to give rise to a new kind of capitalist system. One still based on private property, competition and profits, but fundamentally distinct from the classic capitalism of the 19th century – from the government-led Keynesian economics of the postwar period, and from the Reagan and Thatcher market fundamentalism of the last 30 years.

You can quibble with the details of Kaletsky’s analysis (and do read the complete article, not just this extract, before you quibble), but it is clear that the version of capitalism established by Reagan and Thatcher is now a busted flush – in Adair Turner’s phrase, it is “a fairly complete train wreck of a predominant theory of economics and finance”.

The global economy is at an historical turning point; its future is the really big issue of the decade, not the trivial gossip and the public relations games that normally preoccupy the Westminster Village.

The Liberal Democrats cannot put off recognising this situation any longer. The party’s new year resolution should be to start a serious debate about the sort of economy it wants to see emerge from the wreckage. One can argue about the precise form that economy might take, but one thing is clear: the past is not an option. Any party, not just the Liberal Democrats, that believes its role is nothing more than to tweak a dying economic orthodoxy will become increasingly irrelevant. The advantage will lie with the party that is first to have the courage to admit that the old orthodoxy is a dead loss and articulate a replacement.

And it is no good dismissing this debate as ‘academic’ and nothing to do with ‘real life’ or ‘ordinary people’. For most people, the effects of a failed economic dogma are only too real.