Dominic Alexander assesses the crisis of neoliberalism and argues that there is an alternative in the potential of working-class power to replace capitalist relations of production altogether

From Truss’s band of adventurers to Hunt’s technocracy, one mode of neoliberalism has been replaced by another. The desperate attempt to leap out of the descent into recession by reckless ‘supply-side’ measures has given way to a return to the orthodoxy of neoliberal austerity. This is meant to restore ‘stability’ to the economy. Not only does that notion ignore the existing cost-of-living crisis, but austerity promises only to deepen the downturn in which both Britain and the world economy is increasingly mired.

The warnings from the government on the scale of the ‘eye-watering’ austerity to come are as stark as they could be, with Michael Gove being explicit that “all of us are going to face a hell of a lot of pain in the next two months”, and Truss’s flirtation with abandoning the triple lock on pensions. The latter was remarkable from an already very unpopular government, whose voters are disproportionally pensioners.

It could be that all this was merely softening us up for the budget on 31 October, to make the public feel then that, after all, it might have been worse. If so, that would be a dubious strategy, but, either way, what the Tories are betting is that after the mini-budget crisis, public opinion will be resigned to the necessity of a new round of cuts, as the alternative is bond-market Armageddon.

Arguments against the fiscal orthodoxy, that austerity is the only path forward, will not come from the mainstream, particularly as the Labour Party under Starmer is clearly determined to present itself as a party of sound money and market friendly policy. This does not mean that the new austerity will be sustainable, politically or economically. It is well understood that public services are ravaged after over a decade of austerity, which, combined with the pandemic, means that NHS is close to collapse, and other sectors, like education, not far behind. The cost-of-living crisis means that already millions are going without food or heating, or even both. Even some Tory MPs seem to have qualms about the scale of social catastrophe involved in yet more austerity.

Orthodoxy is no answer

Austerity last time did nothing to reduce government debt, and now will only further depress an economy heading into recession. Service-sector businesses in particular will go bust and jobs will be lost. Government revenues will decrease as a result. It was once accepted as the lesson of deflationary policy during the Great Depression of the 1930s that austerity is self-defeating; nothing has changed that should call that judgement into question. Moreover, this has to be seen in the international context. In the US and Europe, interest rates are rising and national banks are trying to ‘unwind’ quantitative easing, that is, sell off the government bonds they have used to pump money into the economy since the 2007-8 crisis. Austerity added to monetary tightening puts yet more pressure on a fragile outlook.

Hiking ‘interest rates will not work in bringing inflation rates down to target levels without a major slump’, as Michael Roberts explains. The main reason for this is that the problem is supply led; underlying the shocks produced by the war in Ukraine is a more long-term lack of productive investment. Instead, capital has flowed into financial and property speculation. It is notable, then, that current government plans are to retain the cut in stamp duty and the removal of the cap on bankers’ bonuses. The newly imposed ‘orthodoxy’ is therefore doubling down in the areas which are already the most dysfunctional aspects of current economic trends.

The effects of the neoliberal attempt to control inflation by squeezing demand will be felt globally. Developing countries are already facing a major withdrawal of investment as capital flees towards the ‘safe haven’ of the dollar, and this could soon mean a widespread sovereign debt crisis. Moreover, rising interest rates will cause a fall in profits generally. There threatens to be a major global recession, and the Tory government’s turn back to neoliberal austerity will do nothing to shield the UK economy from any of this, rather it is likely to make the situation far worse. This is a true crisis of neoliberalism as it does not have an answer, in any of its guises, to the predicament to which its forty-year rule has brought us.

The weakness of capital

So what is the answer? There has been a strong tide of opinion over the last week or so towards insisting on, or accepting, the old mantra that ‘there is no alternative’. Even Larry Elliott in The Guardian seems to present austerity as inevitable, given the need for the government ‘to restore its credibility in the markets’. Others ask if governments even have any control over their economies in the face of the markets. Certainly, the destruction of the Truss government and its policy is a dramatic demonstration of the power of the financial markets. However, it would be wrong to accept that they necessarily have a stranglehold on economic policy.

It is important to remember that it was only fourteen years ago in 2008 that the global financial system nearly collapsed, with governments having to come up with colossal rescue packages. In the UK, at the peak the government had committed some £1.162 trillion altogether through various support programmes. Then there was the pandemic, with an estimated cost to the state of £310 to £410 billion. The markets did not balk at that spending, because without it, capitalism would have seized up, with profit streams drying up entirely. Note that the pandemic figure is far more than the estimates for what Truss’s energy rescue package would have cost, at something like £150 billion. That cost could have been still lower, of course, if the Tories were prepared to fund it by taxation on energy-company profits.

The power of the markets is not a natural force like gravity, they are a set of social relations, which have been very vulnerable in recent times. It makes no sense to allow ourselves to be held hostage by them when they require so much nurturing and support from the public purse, even beyond the quotidian forms of subsidy such as tax breaks. At issue is not a question of fixed laws of economics, but of the balance of social power. Capital is not in fact free to move around the world just as it likes; it needs workers to exploit, it needs infrastructure, and it needs domestic markets in order to sell products and to realise surplus value as profit. In other words, it needs a functioning and compliant society in order to reproduce itself.

A question of social power

Society therefore has the capacity to fight back. Recall how the pandemic proved the importance of ‘key workers’ of all kinds, many of them among the low paid in the economy. Without them, society cannot function, and so capital cannot reproduce itself. This is the latent power of the working class that, when organised and moving together, can, at the least, force concessions from the ruling class. It is usually said that workers’ power is weakened under conditions of recession, but large parts of the workforce are involved, one way or another, in essential infrastructure of all kinds that must continue to function. These kinds of workplaces take up a disproportionally large share of a developed economy like Britain’s.

The potential to bring wide swathes of the working class together to fight the cost-of-living crisis and the new wave of austerity is enormous. That fight will not just be happening in this country, but across the world. Capital will find similar challenges to its rule wherever it goes. This means that the social balance of power can be changed in a way that the markets will find inescapable. The nature of the fight will look different in developed and developing countries, but both spheres are needed for capital circulation and reproduction.

Nor does resistance have to happen simultaneously; blockages in one accumulation centre at one moment can spark chain reactions elsewhere. The more international contact and solidarity that working-class organisations can construct the better, but this can develop quickly in the right circumstances. Dockers in America in 1919, refusing to load cargo destined to be used against the workers’ revolution in Russia, sparked the famous Seattle general strike. Similarly, in Britain in 1920, workers refused to load weaponry intended for the same destination.

Building a robust resistance will force more than just some concessions, but create the conditions for a radical left-wing programme to be viable. This is not to ignore that there are things that, abstractly, a left-reformist government could do without requiring huge rises in government debt. Higher wealth and corporation taxes, shutting down tax avoidance and tax havens could provide considerable funds for public services. The railways could be nationalised just by letting the private contracts lapse. There are colossal sums regularly spent on armaments and war, or the costs incurred by the privatised sectors with their need to pay out dividends, and so on. Yet all this would certainly be relentlessly attacked, with the financial markets playing their part.

The key to any sustained programme to curb the power of the markets would be to seize control of finance itself, ending not just the independence of the Bank of England, but nationalising the banking sector. Even so, there is no simple left-technocratic strategy that can neutralise the inevitably ferocious attacks any serious left-wing government would face. There is therefore a fundamental question of democracy involved. Neoliberal policy has always been directed at insulating capitalist free markets from state interference, and therefore from any possible democratic challenge. The position has now been starkly laid out as quite simply a question of power.

Politically, without a mass movement to drive a left programme onward, a parliamentary based government would certainly cave in at the demands of capital, as has happened many times before. The only way to address this is through the balance of social power, and this means building the collective power of the working class, and creating radical social movements prepared to challenge the dominance of capital altogether.

Stopping even at the point of achieving a left government in parliament, as far away as that seems currently, would be a short-lived gain. Capital would counterattack at the first opportunity. The only way forward is to create enduring social institutions out of working-class power that would be capable of replacing capitalist relations of production altogether. This means putting all our energies into building the current wave of strikes and demonstrations up to their biggest and widest possible extent.