THE NEW ORTHODOXY

I do not know which makes a man more conservative – to know nothing but the present, or nothing but the past.

John Maynard Keynes

1. INTRODUCTION

Despite their day-to-day tactical infighting, New Labour and the Conservatives now share much the same basic political assumptions and economic philosophy. Instead of overturning the Thatcherite revolution of the 1980s, which initially they so bitterly opposed, New Labour have spent their time in office consolidating it, and seem set to continue the process in their second term. Many of their policies, and much of their rhetoric, now reflect what might be termed the 'Thatcherite consensus', rather than any new 'Third Way' — indeed we do not hear much about the Third Way anymore. But whereas the previous post-war consensus, which Mrs Thatcher and her allies overthrew, was essentially left of centre and consistent with Labour's basic beliefs, the current consensus is firmly on the right of the political spectrum, and at odds with the achievement of a fairer society, which has always been a common objective among the many strands of opinion within the Labour movement. The neo-liberal economic philosophy on which it is based is in many respects a reversion to the pre-Keynesian ethos of the inter-war era, and provides no answers to the problems of today's unstable global economy — any more than it did in the 1920s and 1930s.

Under Tony Blair and Gordon Brown, New Labour's response to the election defeats of the 1980s and 1990s was a striking case of 'throwing out the baby with the bathwater'. They went to extraordinary lengths to disown their predecessors' policies — often subscribing to the most inaccurate and misleading versions of history in doing so. In power, their deference to the rich and powerful, the fact that they are so much more sensitive to the interests of finance than those of industry, and their patronizing and authoritarian approach to the unemployed and others on benefit are all indications of a seismic shift to the right. One consequence is that many former Labour supporters, and people who would otherwise be active in the Labour Party, now feel disenfranchised. It is time to reexamine the neo-liberal economic assumptions underlying the current consensus and establish a more effective policy approach designed to ensure a better and fairer society not just in this country, but throughout the European Union and in the global economy as a whole — policies which will give us greater control over our economic destiny, and not leave us subject to the vagaries of financial markets and dominated by the ethos of financial institutions.

Full employment

The touchstone of economic policy in the post-war period has been Governments' attitudes to full employment. The maintenance of full employment is not merely about the number of people who can get jobs (important though that is), but also about the fundamental nature of society and the balance of power within it. In the post-war era when jobs were plentiful and new employees hard to get, workers, and the trade unions that represent them, were in a relatively powerful position. Governments listened to the unions. Managers had to pay attention to the views of their staff. Society was more egalitarian. The deliberate abandonment of full employment in the 1980s under Mrs Thatcher weakened the power of labour — as it was intended to do, not merely to slow down the rate of inflation, but to 'put the unions in their place'. It became fashionable to talk about 'the right to manage', rather than 'management by consent'. Inequalities in rewards which would have been unacceptable in earlier years became the norm. State provision of social security, health and education, which were basic to the standard of living of the ordinary citizen, were regarded as less important than reducing the levels of taxation on the well-to-do. There was a revolution in society with which we are still living today.

At first the Labour Party was bitterly opposed to the new approach, but in time it came to accept the new Thatcherite orthodoxy. Neil Kinnock deliberately excluded full employment from Labour's objectives, and by the time of his Mais Lecture in 1995, Tony Blair was talking about 'a new economic consensus'. New Labour's adherence to the New Orthodoxy has not only affected their economic policies, domestic and international, but also their approach to policy over a much wider field, including regional policy, welfare reform, income distribution, transport, education and health. The new philosophy, fashionable as it may be, not only conflicts with the fundamental objectives — or what should be the fundamental objectives — of any left of centre government; but the circumstances which led to its introduction no longer exist. Inflation is no longer the main danger facing the world economy. Neo-liberal economic policies offer no solutions to the problems of maintaining stability in an international economy increasingly subject to the vagaries of global financial markets.

In some respects Tony Blair and Gordon Brown have not adopted the policies needed to achieve it. Instead they have embraced the New Orthodoxy even more enthusiastically than their Conservative predecessors. This was exemplified by the way in which the new Chancellor announced the granting of independence to the Bank of England to fix interest rates within days of the 1997 election. This was later accompanied by statements that budgetary policy (i.e. changes in taxation or public expenditure) would no longer be used as an instrument of demand management. Although this might appear a purely technical matter, it is in fact one of major political significance. Taken at its face value, it means that what should be one of the major...