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Neo Liberalism vs Neo Marxism

by Chauncey Tinker – 23 Jul 2017

From the moment Margaret Thatcher came to power, UK politics has been dominated by an economic strategy that many refer to as “Neo-Liberalism”. More recently however a very left-wing leadership has taken over the Labour party. The shadow chancellor has been pictured at a rally where many were waving the red communist hammer and sickle flag. Even the Conservative party seems increasingly left-leaning at the moment under Theresa May’s “leadership” (I use the term sparingly here). I have to tell you readers that I am considerably alarmed by this trend.

The picture that John McDonnell probably doesn’t want you to see

Have people forgotten the dysfunctional era of strikes and power cuts that preceded this “Neo-Liberal” period? Of course many of today’s voters were born after this period and have no recollection of it. They are faced by a different set of difficulties which we need to understand if we are to explain why politics is once again shifting leftwards. I therefore thought it was time to take a closer look at the two conflicting “ideologies” that seem to be dominating the economic thinking of today’s UK politicians.

I think we also need to have a hard and critical look at some of the failures of so-called “neo-liberal” policies as well. I thought I would broach the subject in a general way in this first post and then in some subsequent posts have a deeper look at some of the individual subjects. No doubt our readers will have some useful input of their own on these subjects – please feel free to leave comments below.

WHAT IS “NEO-LIBERALISM”?

In general “Neo-Liberalism” advocates free market principles and a small government. According to Wikipedia, the exact meaning of the phrase has changed over the years and differs in different countries. For the sake of argument I am just going to look at the policies of Mrs Thatcher and the governments that followed hers in the UK.

THE NEO-LIBERAL ERA IN THE UK

In her determination to break the stranglehold of the trade unions on the UK economy, Mrs Thatcher unfortunately put a lot of people out of work and shut down some industries which have not recovered. This pushed a lot of people onto welfare which she did not reform in any significant way, and those people had little incentive to move to find work elsewhere. The unemployment situation did start to improve again however towards the end of her time in office.

The sector that seemed to most prosper in this era was the financial sector – not a sector that produces anything tangible.The old British class divide between the working (blue collar) class and the middle class has been eroded in this period.

Unemployment rate (aged 16 and over, seasonally adjusted)

One of Mrs. Thatcher’s aims was to reduce regulation but today many small businesses claim they are heavily burdened by regulation, quite a lot of which comes from the EU. This makes it difficult for them to hire staff and expand. Her dream of rekindling small business in the UK doesn’t really seem to have come to pass, at least not to the extent she was hoping to achieve. Failure to address the regulatory burden (and subsequent govt.s adding to it) seems to me to be a major factor holding back enterprise in the UK today. I think we need to look into this subject in a lot of depth, if anybody follows interesting sites that address this question please let us know in the comments below.

Obsession with privatization has led to the absurd situation where the Inland Revenue sold off some of its properties to a tax-avoiding property company! That company was in large part owned by one George Soros. See page 1 of this pdf doc:

https://www.nao.org.uk/wp-content/uploads/2004/05/0304530es.pdf

Links on the subject:

https://www.accountancyage.com/aa/news/1808456/mps-slam-hmrc-business-acumen-offshore-company-deal

http://www.telegraph.co.uk/finance/2931084/Mapeley-questions-still-to-be-answered.html

Other “neo-liberal” “private finance” type initiatives have not been huge success stories as far as I can make out either – in fact there have been other scandals. Is this “neo-liberalism” or is it crony capitalism?

Another negative feature of this period has been the emergence of “zero hours” contracts. It seems strange to me that the EU is regarded as effective in ensuring workers’ rights when people have been pushed onto these contracts while we have been a member of the EU. It seems to me established big businesses have been the real winners in this high-regulation environment because they are the only businesses that can afford to hire the staff to keep up with all the red-tape.

EVER RISING HOUSE PRICE RISES

One of the blights of the “neo-liberal” era has been the fact that house prices have been endlessly increasing (with a couple of short reversals). Trying to get on the housing ladder has been for many in this period a bit like being a dog chasing the rabbit at the dog races. As you work and save for your first house you find that the house prices just keep rising just beyond your reach. That was certainly my experience.

I attribute this phenomenon to the system known as “Fractional reserve banking” (I call it “Fictional Reserve Banking”) where banks lend ever increasing amounts of “money” to people who can’t really afford to pay it back from a mysteriously ever increasing supply. When Tony Blair’s New Labour govt. opened the floodgates to mass immigration this obviously exacerbated the housing shortage, but house prices were already rising at a staggering rate before he came to power – thanks to the wonders of modern banking. I have suspected that the problem has been even further exacerbated by the “quantitative easing” program which has caused inflation specifically in asset classes.

This has led to a new kind of class divide – between those who own property and those who don’t. I remember hearing a colleague bemoaning the fact that he could have made more money in a period if he had simply bought a house (instead of renting his home) than he had from his reasonably well-paid occupation. How he regretted not getting on the housing ladder. The money supply has just kept on increasing in this period:

United Kingdom Money Supply M2

One of Corbyn’s proposals that may possibly limit the ever increasing property values is a return to a land tax. I think we need to take a serious look at this proposal – very few people seem to have mentioned it during the election campaign. They were too busy mindlessly repeating empty soundbites and slogans “for the many not the few”.

NEO-MARXISM

Is Corbyn a communist? Not really I don’t think so, what he is is a socialist. He wants to re-nationalise the railways, utility companies and the post office but in the recent election manifesto he did not propose to go further than that in re-nationalizing. Why I think the label “neo-marxist” is appropriate is because he believes in wealth re-distribution, he doesn’t like wealth inequalities. His economic sidekick John McDonnell (the shadow chancellor) is more direct and has said that he is an “unapologetic Marxist”. From the Daily Telegraph:

The Marx Brothers: Jeremy Corbyn joins John McDonnell in praising Communist icon’s work

When questioned on the EU (extract from the New Statesman):

“I tried as hard as I could,” he said. “My message was ‘remain and reform’. But if we rejected the result now, what message would that send to the Labour voters for Brexit?” Then he declared that what was needed above all else was “the redistribution of wealth across Europe”, and everyone applauded again.
….
Moderate social democracy was finished, he said, because it attempted to “manage the system, rather than transforming it”. He repeated the need for a “redistribution of wealth and power” and said that the “management model” did not work as it had created a “free-for-all market economy that blames minorities for the inequalities”.

No Jeremy the free-for-all market does not blame minorities for the inequalities. A free market is not a sentient being, it is just what happens when governments don’t interfere with people pursuing rewards for their hard work . Despite this bizarre indictment of the free market he seems to get it that the free market is the best system to produce that wealth that he wants to “redistribute”. The Labour manifesto declares that:

Labour is the party of small businesses. We understand the challenges our smaller businesses face

Our small and medium-sized enterprises (SMEs) are the backbone of our economy, providing 60 per cent of private-sector jobs. Technological changes, like the spread of digital manufacturing and rapid communication, mean smaller, faster businesses will be the future of our economy.

The manifesto then goes on to explain (page 18) how the Labour govt. would go about helping small businesses, including setting up “development banks”.

Mandate the new National Investment Bank, and regional development banks in every region, to identify where other lenders fail to meet the needs of SMEs and prioritise lending to improve the funding gap.

So a govt. bank is going to lend taxpayers’ money to small and medium enterprises? I tend to think that private banks are better at making decisions about which businesses to lend to because their very survival depends on making such decisions wisely. Mind you I suppose that was more the case back in the day, before banks became apparently “too big to fail“. It is perhaps surprising to note that the Conservative party under May’s leadership has also proposed a more interventionist approach to stimulate business activity. She appears to be departing somewhat from the “neo-liberal” ideology as well.

So, exactly how would Corbyn and McDonnell the neo-Marxists go about re-distributing wealth? For one thing many students seem to have been under the impression that Corbyn was promising to wipe out historical student debt in addition to scrapping tuition fees going forward, but the Labour party appear to be rowing back on their apparent promise since the election:

Labour ‘aim’ to wipe £100bn student debt – Angela Rayner

The Spectator had an amusing take on Labour’s manifesto proposals here:

Labour’s manifesto steals from the rich – and gives it back to the wealthy

I will take a closer look at Corbyn’s other wealth re-distribution plans in a subsequent post.

IMMIGRATION

The “Neo-Liberal” mindset tends to be relaxed about border security, no doubt influenced by the libertarian idea that immigration is only a problem if you have a significant degree of welfare provision (i.e. a big govt.). The objective of libertarians tends to be therefore to focus on reducing the size of the state rather than controlling immigration. Introducing border security tends to hamper free trade, which “neo-liberals” favour and so currently border security is inadequate. Consequently the endless stream of lorries heading towards the channel tunnel entrance at Calais has been targeted by thousands of migrants trying to get into the UK. We don’t know exactly how many are getting through by this route, but clearly some have been succeeding as from time to time news stories surface where migrants climb out of lorries in broad daylight in the UK.

I disagree strongly with this blasé viewpoint. For one thing the welfare provision is still very much in place today, so being relaxed about border security while huge numbers of people continually arrive in our country is leading to very significant and growing numbers of people dependent on that welfare. This means it gets just harder and harder politically to reform welfare, because these people soon acquire the vote. It would make far more sense to address welfare reform BEFORE opening the borders in any case.

However the current wave of migration from the “developing” world is bringing serious problems beyond the simple welfare bill – such as cultural incompatibility and crime. People in poorer countries are always going to be attracted to live in richer countries even without generous state welfare provision, and there is a population explosion going on in the poorer countries of the world right now.

The “Neo-Marxists” also have a blasé attitude when it comes to immigration. Their determination to gain power means they are happy to welcome people from cultural groups whose ideologies are very much at odds with their own, because immigrants tend to vote left. The enemy of my enemy is my friend even if they are really not, or something like that, seems to be the attitude. The fact that Jeremy Corbyn has made the pro-immigration MP Diane Abbott his home secretary tell us everything we need to know about Corbyn’s desire to control the borders.

Trigger warning – this is an article at the Guardian by Diane Abbott which claims:

Labour has never had an open-door immigration policy

The statistics for net migration from Tony Blair’s time in govt. onwards suggest otherwise.

CONCLUSION

I am generally inclined to the view that at best more government interventions of any kind will mess things up and consequently add to the national debt without particularly improving real productivity. Corbyn’s neo-Marxist agenda will likely succeed in reducing inequalities – by making everyone poorer together.

However I think we also need to look at the failures of the “neo-liberal” period as well. Property prices have been rising endlessly leaving many hard working people with no hope of owning their own homes. People in the banking and property sectors have enriched themselves, taking advantage of this property boom without end. The property divide is a problem that I think needs to be looked at in a serious way and we need to look at the land tax proposal in more detail (in another subsequent post), as I think it might possibly be a partial solution.

The partial privatization of the railways has not been without issues, so we need to have a closer look at that – rail subsidies have been growing. Partial attempts at privatization may be producing the worst of both worlds in other areas as well. De-regulation has not taken place to a significant extent, the big players dominate many areas. Without small businesses competing for employees many people are left with no alternative but to accept zero hours contracts from the big businesses who can get away with such lousy employment contracts.

RELATED POSTS

The Welfare State We’re In

Where Did All The (QE) Money Go?

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