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THE NEW LABOUR EXPERIMENT

STANFORD UNIVERSITY PRESS

Contents

Acknowledgment........................................................................ixNote to Readers.......................................................................xForeword by Jonah Levy................................................................xiIntroduction..........................................................................11. The British Business Model versus the European Social Model........................172. Bureaucratic Revolution, or Privatization of Public Services?......................423. Decentralizing or Centralizing Institutions?.......................................624. The Reinvention of the Labour Party. "New Labour, New Britain".....................885. Democratization or Control?........................................................110Conclusion: Toward a Market Society...................................................133Postscript: The Fall of New Labour....................................................143Notes.................................................................................159Bibliography..........................................................................175

Chapter One

Economic and social policy was the main linchpin of the New Labour project. It justified most of the policies pursued, and a number of assessments focus on this dimension. It was neither a servile adoption of Thatcherite policies, nor a textbook example of good governance according to the criteria of international organizations. Nor was it an updating of British social-democracy, consisting in alleviating the harsh impact of capitalism on individuals, or reducing the most unjust inequalities in terms of wealth and power in the framework of parliamentary democracy. In order to understand the originality of New Labour, we need to remember that the failure of previous Labour governments was primarily economic. Stop-and-go policies had led to erratic fluctuations in interest rates and to inflation's reaching 24 percent in 1975. The Wilson government had to negotiate a loan from the International Monetary Fund, helping to establish a reputation for economic incompetence on the part of Labour.

The New Labour elites were convinced that their credibility and their ability to stay in power were going to be determined by economic issues: they had to reassure both the markets and the middle classes who would swing the results of elections in marginal constituencies. In 1992 Labour lost the elections mainly because of the announcement of tax increases in the budget. Gordon Brown-who was working at the time with John Smith, then in charge of economic affairs for Labour-drew the lesson. In the months that followed, his team published working documents and pamphlets that signaled a major break with the traditional Labour vision. Impressed by the role of innovation in U.S. growth in the 1990s, he rejected both monetarism and the old Keynesianism. He educated himself in recent economic theory and took a particular interest in new theories of endogenous growth and the logic of globalization. The knowledge economy seemed to open up opportunities for a type of capitalism that was more favorable to individuals, and hence remote from the traditional conflict between capital and labour: the new capital was supposedly composed of individuals' social capital, knowledge, skills, and capacity for initiative.

The discovery of this new mode of capitalist development of knowledge, technological innovation, and globalization inspired radical policies in New Labour. On the other hand, criticism of power structures and power relations was, so to speak, forgotten. The experience of the Blair governments has prompted many debates on the more or less social-democratic or neo-Keynesian character of the reforms accomplished. Relative macroeconomic relative success was qualified by profound imbalances that persisted or deteriorated.

The dynamic of the policies implemented during the decade is key; the "cool Britannia" of May 1997 became "cruel Britannia" in 2005, when Tony Blair decided to become more radical in his reforms. Social-democratic intellectuals like Colin Crouch or David Marquand argued that New Labour had abandoned any reference to the reduction of inequalities or support for the losers from capitalist modernization, and that they identified with the winners, with the new meritocratic, transnational bourgeoisie (Sklair, 2001).

The Activist, Innovative State

In taking their inspiration from new theories of growth, Brown and his team positioned themselves in a framework of neoclassical economic theory, in which markets are competitive, efficient, and dynamic. It was not a question of abolishing the role of the state, but of reorganizing and redirecting its activity so as to benefit from the potential for dynamism and efficiency delivered by markets. Consequently, it was initially necessary to maintain a stable, predictable macroeconomic framework, in order to reassure the markets and appear credible in their eyes. Fiscal, monetary, and budgetary credibility and stability were therefore essential, so as to avoid jolts and negative effects. Next, economic policy must be targeted as closely as possible on individuals, with microeconomic policies of incentives and sanctions (the influence of rational choice theory) to encourage/compel individuals to seize the opportunities offered by the job market and not be dependent on the state.

Gordon Brown's historical success consisted in stabilizing the macroeconomic environment through noninflationary growth, while maintaining a low level of taxation. Compared with other major countries in the European Union, New Labour's economic record was unquestionably exceptional until the crisis in 2008:

The growth rate of 2.6 percent per annum between 1997 and 2007 was higher than that of the Eurozone, especially France or Germany.

Inflation averaged 1.5 percent between 1997 and 2006.

Interest rates were low.

The unemployment rate fell to around 5 percent, half that of the German or French rates.

Britain remained the most attractive country in Europe for foreign investors. Every year since the 1990s, it has attracted an uninterrupted flow of investment in firms and services-a key criterion for the dynamic British economy.

Fiscal and financial policy was prudent, without massive deficits or inopportune tax reductions. The public debt was reduced from 44 to 36 percent of Gross Domestic Product (GDP) (it has since increased to 41 percent), and New Labour committed itself not to exceeding 40 percent of GDP.

The stock market and property market grew rapidly (a 150 percent increase in property values in nine years), enriching homeowners.

Thanks to a notable improvement in per capita GDP, Britain rose from last to third place in the G7.

A ten-year period of uninterrupted economic growth, coupled with a stabilization of macroeconomic indicators, is unique in British history. This success was very largely attributable to the chancellor, who was never over ruled despite tensions. Nevertheless, Gordon Brown inherited a favorable context from the Conservatives, created after the disaster of Britain's exit from the European Monetary System in 1992. Moreover, at the end of the first Gulf War all European countries enjoyed a bright spell...