The Great Crash changed politics more than it reformed finance


God moves in mysterious ways. The Archbishop of Canterbury is of mortal flesh. Justin Welby’s hellfire sermon about the “evils” of capitalism, which won him repeated ovations from his congregation of trade unionists, was a speech very much of its time. In both its content and its contradictions, the Church of England’s senior prelate was channelling not so much the infinite divine as a highly contemporary and earthly mood about what has happened over the past decade.

The Great Crash exposed things that were very wrong with the way the economy is organised and those ills – sins, to an archbishop – have still not been fixed. This argument is now so pervasive that you sometimes even hear it from senior Conservatives.

The anniversary of the Great Crash has revived some vivid memories. One of mine is bumping into Alistair Darling, the then Labour chancellor, when he stood in the eye of the raging storm that threatened to blow down the entire financial system. He wryly observed that he had spent his life being told that state intervention was folly, public ownership was idiocy and there was no alternative to untamed free markets, and now the very same people “are telling me I have to nationalise the bloody banks”.

He did nationalise them and he was right to do so. I’d still say that the immediate political response to the Crash was absolutely necessary to prevent a death spiral in the financial markets turning into something much blacker. In the most perilous week, Britain and other major developed countries came very close to the point where the banking system would have imploded. Cash machines would have stopped working. Wages would not have been paid. A nation would have found its credit cards being declined. Some families would have soon struggled to put food on the table. The spectre of civil disorder, perhaps anarchy, haunted all those involved in the frantic attempts to rescue bankers from their own reckless gambling.

The spectacle of the banks being bailed out with gazillions of taxpayers’ money, some of which will never be recovered, was a very hard one for voters to stomach, even if they appreciated its necessity. The backlash grew because the perpetrators walked away from the wreckage largely unscathed. There have been fines and a few people have been prosecuted for specific scandals. Some bankers were obliged to endure a ritual roasting in front of British parliamentarians or members of the US Congress. Fred Goodwin was stripped of his knighthood. As a class, though, finance strolled on with a smile on its face, leaving less affluent folk to do the hurting. Bankers continued to enjoy lavish rewards while millions of other people paid the price in squeezed living standards and reduced services. In the rather striking phrase of Yanis Varoufakis, the former Greek finance minister, it became a case of “bailouts for the few and austerity for the many”.

There was a lag before the political blowback arrived. The initial public response to this crisis of capitalism was not, as some had naively expected, a big swing to the left. Rather, there was what you might call a flight to safety by many voters. Angela Merkel was the acme of the kind of solid-looking and reassuring-sounding politician who prospered in the immediate aftermath. Voters looked to leaders who could project stability amid uncertainty. Even Gordon Brown enjoyed a brief moment of respect and popularity in his otherwise benighted premiership.

That began to change as shock metastasized into resentment and then anger. Austerity policies, accepted by many voters in the early years, exhausted their patience and became discredited as a response. Unsatisfied fury with the bankers was displaced on to politicians who were easier to punish. Voters turned against the conventional parties of the centre-left and centre-right who had ruled most of democratic Europe since 1945, not least because the crisis happened on their watch.

“It’s awful – why did nobody see it coming,” the Queen asked. It was an excellent question, to which those who had been in charge didn’t have an answer. The most conspicuous political losers were, and continue to be, moderate, social democratic parties. They had previously had a very successful formula: friendly to markets while also spending some of the fruits of growth on public services and social justice. That formula went bust with the banks. The centre-left was attacked from the right for running up deficits and from the left for being accomplices of a “neoliberal model”. In some countries, the result was the evisceration of the traditional governing party of the left by a more radical manifestation from further along the spectrum. In Britain, there was a different kind of takeover: New Labour was devoured from within and replaced by a Corbyn Labour whose leadership cadre includes admirers of Karl Marx.





Donald Trump



It is hard to conceive of Donald Trump being in the White House without the Great Crash. Photograph: Susan Walsh/AP

The big winners of post-Crash politics have been the insurgent populists who have fed on and amplified the injustice felt by many voters. These self-styled tribunes of discontented people have often been men of advanced years with very dated ideas about how to reform an economy, but they benefited greatly from the age of rage. They peddled snake oil, but it still tasted better to many voters than the bitter syrup of austerity. It is hard to conceive of Donald Trump being in the White House without the Great Crash. It is likewise a struggle to believe that Jeremy Corbyn would have taken over the Labour party. The Crash had a big hand in shoving Britain towards Brexit and extreme nationalists towards power elsewhere in Europe. All are products of a widespread sense of unfairness and this has been magnified by other things. Loose monetary policy by central banks – quantitative easing – did help to prevent a full-blown repeat of the Great Depression. But, as several studies have illustrated, it also had the effect of widening inequalities. By inflating the price of financial assets, QE disproportionately benefited the already affluent.

Companies did not respond to the Great Crash, and the economic downturn that followed, by slashing their workforces and workers were prepared to accept wage freezes and even cuts as a trade-off for retaining their jobs. In Britain, we were spared the horrendously high levels of unemployment that scarred the 1930s and the 1980s, but it also accelerated a change in the nature of work. Cost-cutting led to more precarious jobs, often on exploitative terms. The number of zero-hours contracts has quintupled since 2010. Politicians did not keep up with this trend. They were particularly feeble in adapting to the rise of the tax-avoiding titans of tech. This, along with stagnating living standards, is why Britain can simultaneously have both its lowest official unemployment rate in more than 40 years and a conspicuous absence of any economic feelgood factor.

The public is cross with capitalism, but also contrary, and sometimes hypocritical, in its anger. An archbishop is not immune from these contradictions. His fierce attack on Amazon and Google for “paying almost nothing in tax” was quickly followed by the undivine revelation that the Church of England’s investment portfolio has its boots filled with shares in the internet giants. His denunciation of zero-hours contracts as the “reincarnation of an ancient evil” sounds less resounding when it turns out that some of the grandest cathedrals employ people on, er, zero-hours contracts. Lord, make me pure – but not yet.

In the contradictions of his position, the archbishop is quite like many of his fellow citizens. People who express outrage about “the gig economy” are often the same people who enjoy the convenience of having an evening meal delivered to the door by a guy on a moped or who fall into an Uber after a night out. People who lament that the tech behemoths are hollowing out communities by devastating the high street often do so without wondering if they had a hand in that destruction by migrating their shopping to the internet. The disaffection with capitalism is not accompanied by good evidence that the mass of voters in western democracies want to end the free market. There do not seem to be that many takers for “the overthrow of capitalism”, the cause John McDonnell used to list as his hobby in his Who’s Who entry. One reason is the absence of any attractive alternative model in practice. Venezuela anyone?

There is much better evidence that a critical mass of the public is highly discontented with the current version of the market economy and are open to ideas for reform. The politicians who lost the last decade did not appreciate that enough. The politicians who win the next decade will likely be the ones who get it.

Andrew Rawnsley is an Observer columnist



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