For 34 years private markets have held sway, with the corollary that the State was inefficient and bureaucratic and should accept its role to get out of the way. Since that Thatcherite-engineered change of culture after 1979 the UK has undergone a major recession in each decade – in 1980-3, then again in 1990-3, and then in 2008-9 the biggest financial crash since 1931 and the longest recession since 1873. Both the frequency and severity of financial collapse has accelerated. The growth of average real incomes per head fell by a third from 2.4% a year during 1950-80 to just 1.7% a year in 1980-2010. Britain’s manufacturing base was decimated by the abandonment of State oversight of the nation’s strategic economic assets in favour of sell-offs, mainly to foreigners, on grounds that the market knows best. As a result the balance of payments in traded goods plummeted from near parity in the early 1980s to a whopping, and utterly unsustainable, £100bn a year deficit in each of the last 3 years.
Above all, the banks, which at their peak contributed £25bn a year to the Exchequer in corporation tax, ended up costing the country (taxpayers) £68bn in direct bailouts and indirectly hundreds of billions more in soaring national debt generated by special liquidity provision, loan guarantees and asset protection schemes. And even that excludes further dozens of billions in lost revenues to the Exchequer resulting from the deep recession caused by the banking crash, let alone the incalculable losses in tax revenues caused by the banks running amok in industrial-scale tax avoidance. Altogether the central lesson of the last half century is that out-of-control private markets have proved, on every economic and social count, an unprecedented failure.
At the same time the role of the State, played down at best or ritually vilified at worst, has proved uniquely salutary when all else has failed. Only State intervention on a massive scale prevented a global financial crash from turning into 1930s redux, and in the prolonged recession that has followed only colossal State support has kept the UK economy from sinking into the depths of deflation. Successive tranches of quantitative easing (electronic printing of money to keep long-term interest rates low and prop up demand) to the tune of £375bn have been accompanied by ultra-low interest rates, the State underwriting of risk, and active measures to direct credit where it is needed – ironically all Keynesian policies of State intervention which have saved the British economy from Osborne’s unnecessary austerity in the teeth of his forlorn insistence that private markets alone should dominate.
But the worm is now finally turning. More and more people are now realising that there can be no sustainable recovery without a more balanced, proportionate, rational and mutually dependent relationship between State and markets. Fleshing that out in theory and practice is a central objective for 2014-15.