Trussonomics: adventures in fantasy deregulation land

Dominic Alexander examines the contrast between Tory talk of growth and the reality of a failing economy

All indications are that we are headed for a global recession, with the UK already having experienced its second consecutive quarter of economic contraction (the technical definition of a recession is two consecutive three-month periods of negative growth). Undoubtedly, for most people, inflation in general and energy prices in particular are the most obvious and pressing aspects of the crisis.

As was clear some time ago, the government would need to intervene in the gas and power markets, and Truss eventually announced a plan to cap prices just above current levels. That’s already an average of £2100 when factoring in the previously announced £400 discount, while the average is higher for those with prepayment meters. These prices will still mean that over 6.7 million households suffer from energy poverty and are left with impossible choices between eating and heating.

From the perspective of the ruling class, politicians may be doing just enough to avert an unpredictable social catastrophe that will result from projected further increases in bills, but the economic fallout will nonetheless be severe. With so many people struggling to get by, economic demand will fall and this will further weigh on an economy that is already in recession. The Keynesian argument that stimulating general demand is the way to end a recession may not be entirely correct, but a further decline in the purchasing power of the majority of the population will certainly deepen the crisis.

Furthermore, at a cost of £150 billion, the real beneficiaries of the £150 billion price cap are the energy companies, whose profits are effectively being subsidized by it. The government may intend to negotiate price reductions through agreements with individual companies, but seems deliberately to be in a weak negotiating position. It will come as no surprise if the government later insists that the policies must be paid for by further cuts in public services. Finally, Truss was quoted as saying, “We should grow by 2.5 on average [%]. And happiness is a faster growing private sector than the public sector. We have to achieve that.”

Contrasting solutions to the recession

The ostensible argument is that a growth spurt will recover the cost of protecting corporate earnings. In fact, the idea parallels the Keynesian argument that government spending during a downturn, and hence the accumulation of debt, is not a problem if that spending stimulates demand and thus stimulates the economy. A growing economy means an increase in tax revenue and thus the state will recover what it used to spend and the circle is square. However, Truss’ plan is by no means a Keynesian one, as it focuses solely on protecting profits rather than mass consumer demand. Instead of increasing the amount of demand, their supply-side solution aims to increase the amount of capital available for investment.

But parallel to Truss’s profit-boosting program, the Bank of England has pursued a policy of raising interest rates to lower inflation. This increases the cost of debt, such as B. mortgages, and will inevitably further depress demand in the overall economy and also increase the cost of the investments required in the economy. However, Truss has promised to leave the bank alone; Otherwise she would frighten the very forces of capital she seeks to flatter. In practice, the two directives work against each other.

Much has been made of Truss and Kwarteng’s clash with the “Treasury orthodoxy,” which supposedly insists on government fiscal restraint and “balancing the books,” in other words, austerity measures. It seems likely that this will be decided in favor of orthodoxy in the long run, as capital in general wants to see “balanced books” eventually. Leaving the burden of clean-up public finances off capital will mean further austerity on public services that are already at or beyond breaking point. Even the far-right Chancellor Sunak seemed to realize that was no longer an option and thus downplayed the possibility of tax cuts. It remains to be seen how far Truss will be able to push the “supply side” argument, for example by rejecting a corporate tax hike.

Truss’ strategy is that the “unleashing” of capital will boost growth, and therefore their government will be able to overcome these contradictions. Their refusal, at least for now, to consider any form of windfall tax for energy companies seems politically unnecessary. It would now be a U-turn, but it has already done so with energy policy; the Tories did not use such a tax until May and stealing Labour’s existing policy demand would put Starmer in a difficult position. Her stance is best explained as signaling to international capital that her government will do everything possible to protect her interests. The plan is a free market dystopia, with all regulations and protections being swept away.

Begging for capital will fail

A number of other announcements fit this pattern, from promised tax cuts that benefit the wealthy the most to hints that Truss plans to lift various restrictions and regulations on the sale and marketing of unhealthy foods. In the energy sector, lifting the ban on fracking for shale gas deposits is particularly important. This is a deregulation mania that will not help in the energy crisis. The government’s own response in May 2022 to a question about fracking acknowledged: “It would take years of exploration and development before commercial quantities of shale gas could be produced… Sufficient quantities of gas are unlikely to be available to support the high prices.” handle all of Western Europe, and would certainly have no impact on prices in the short term.’

Fracking is a major polluter, apart from its greenhouse gas emissions, and would only contribute very small amounts to the UK’s energy needs. Also, it would take years to get them to market, while renewables can be brought into production much more quickly. Fracking promotion is a ludicrous solution to the crisis and is likely to be very unpopular politically. So why go into it? The answer lies in the signal it is once again sending to capital that the UK should be a free market haven with little regulation, so please come and invest here.

This will not work. The assumption is that if you lower investment costs, capital will respond and economic activity will pick up and pull the country out of recession. However, capitalist investment depends on its profitability, and that is more complex than just a function of the amount of capital available. If quantity were the only problem, then the “quantitative easing” policies pursued by governments in response to the 2007-2008 financial crisis would have been successful in stimulating investment. It didn’t; The policies effectively increased the money supply, but financial institutions simply hoarded the windfall, and the effects were limited to creating bubbles in housing and stock markets. It didn’t help pull Western economies out of the long-term slump.

Britain’s Capitalist Impasse

The recessionary forces at play are global in nature, and more deeply rooted in a broader profitability crisis than Truss’s notions of deregulation and increasing capital supply can overcome. In fact, Britain has pursued a low-wage, low-regulation economy since Thatcher’s huge defeat at the hands of the unions in the 1980s. The winners of this social struggle were largely the City of London’s financial institutions, while manufacturing suffered an inexorable decline. The economy is increasingly focused on the ability of finance to capture much of the value added produced elsewhere in the world. This has affected the lives of most people in this country, let alone elsewhere.

Britain’s economy has become highly dependent on the whims of international currents. This was less the case during the Depression of the 1930s, when a large manufacturing base with a tied market in the Empire meant Britain suffered less (though badly enough) from the global depression than economies like the US and Germany. Now, however, further free market frenzy on the “supply side” will only accelerate the trends that have been leading us towards the current crisis for decades.

There are no good options for the UK ruling class, which is why there are several feverish divisions between different factions: the pro- and anti-Brexit camps, the truss-versus-Sunak factions in the Tory party and the spit between the Treasury Orthodoxy and Truss’ new broomsticks. What they all agree on is a program of repression, particularly aimed at the unions, as workers have shown a renewed willingness to resist. Against a threat from militant workers, the ranks of the ruling class will find common ground soon enough.

However, this is not a repeat of the 1980s. The policy of Thatcherism has definitely taken its course. They were only successful at all because Britain was able to ride a global wave of neoliberalism’s relative success in emerging from the crisis of the 1970s. This success was fairly relative, however, as profit rates did not recover anywhere near 1960s levels. A capitalism that works for fewer and fewer people will lose footing, and this is where the labor movement has the potential to win over broad sections of the population to a very different approach to economics.

The starting point can be to demand the nationalization of the entire energy sector so that it is oriented towards social and ecological needs instead of profit requirements. Austerity in public services must be ended and resources directed towards the common good. Many will agree with that. Organizing around such demands can bring us closer to a movement capable of demanding an end to profitability economics.