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Bookmark and ShareJosh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.

Financial crisis

After the storm: what will replace the neoliberal consensus?

The financial crisis which erupted almost two years ago has led to the biggest shake up in economic policy since the Oil Crisis of the 1970s.  Neoliberal economics lies in tatters, with the UK Conservative party dismissing the notion of the ‘utility-maximising rational actor’ as a fantasy and Martin Wolf of the FT pronouncing the end of the dream of global free market capitalism.  The question is what will come next.

Sadly, there are few signs of a new approach which takes seriously the ‘triple crunch’ of the financial, environmental and energy crises.  Rather, governments are turning back to tried and tested state-led growth strategies to reflate national economies, pumping liquidity into credit markets and creating new or bringing forward existing public spending plans.  In other words, there has been a return to post-war Keynesianism – the doctrine that the state could and should regulate the market and step in to boost demand whenever required.   This thinking lies at the heart of Obama’s $787 billion fiscal stimulus package, as well of those of Europe and China.   China is embarking on what is possibly the biggest Keynesian experiment in history, with the government attempting to create a welfare state virtually overnight so as to maintain demand as well as pumping billions of yuan into mainly state owned industries, as Newsnight’s Paul Mason recently revealed.

Aside from the fact that the proportion of this new funding that will be spent upon green investment is rather small (very small in the case of the UK), there are bigger questions about whether this whole approach will prevent another, bigger financial crisis and  help us move towards to the low carbon, low throughput ‘steady-state’ economy required to prevent catastrophic climate change.

As Walden Bellow, the Phillipino intellectual and activist, points out in a recent article, today’s crisis requires us to move beyond Keynesian demand management at the national level to address global problems of inequality, overproduction and over-consumption.  For Bellow:

“The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North.  All the talk of replcaing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible.”

These are issues nef has addressed in our interdependence reports but currently they are not even on the ‘any other business’ agendas of the  finance ministries of the world’s great powers.  Rather, we are seeing a return to a ‘Growth as Usual’ policy which flies in the face of global inequalities and serious attempts at a transformation to a low carbon economy.   It is about time that economists began to look at some of Keynes’ less well known policies, such as that economies should be primarily concerned to consume only what they are able to produce, outlined in his essay on  “National Self-Sufficiency“.    Globalisation, in particular the globalisation of capital flows, is a major part of the reason we are in this mess – a bit of de-globalisation  will be required to get us out of it.

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster. He also draws cartoons for nef‘s newspaper.

Pat McFadden: a neoliberal nostalgic

Pat McFadden, a neoliberal nostalgic | Photograph: Sharon Wallace

It’s been over a week now since we launched our proposal for a People’s Bank based at the Post Office. In a packed committee room in the Houses of Parliament we heard politicians of all stripes voice their support for this new kind of bank, one that would put communities, small businessses and the financial excluded first.

The only speaker to mince his words and to temper his enthusiasm with caveats was, of course, the Minister for Postal Affairs, Pat McFadden. There is a danger, McFadden warned us, of becoming so ‘nostalgic’ about the Post Office that it blinds us to its current problems and the need to modernise. And then he said: ‘We can’t simply go back to the way things were’.

We can’t simply go back to the way things were.

But isn’t it McFadden and the rest of this Government – rather than the Post Bank Coalition – who are the real nostalgics here? After all, they’re the ones who are desperate for us to go back to the way things were before Lehman Brothers declared its insolvency, before the failure of HBOS and RBS. They continue to pump seemingly endless amounts of public money into banks which, as nef argued in our banking report I.O.U.K., are no longer able to perform the most basic functions of a bank.

The Post Office, by contrast, remains a vital and much-needed element of the UK economy. nef‘s research shows that each post office saves neighbouring small businesses around £270,000 each year. And small businesses employ the majority of the private sector workforce, around about 58%. Nor is the Post Bank simply a means of saving the Post Office network: we also believe it would offer something markedly different to what the current high street banks are doing, even taking into account the fact that these banks are now effectively in public ownership. As Liberal Democrat Treasury Spokesperson Vince Cable said of the Post Bank proposal:

This is an attempt to clean up banking. The co-option of the system has spread right through into the branches. There was aggressive cross-selling, commission-based branch managers were drawing people into transactions they should never have done. This is a cleaner principle based on sound banking ideas, but driven by public interest rather than narrow short-term profits.

What’s more, the proposal could easily be put into action. A recent poll by PoliticsHome.com revealed that 74% of the electorate think that a Post Bank would be a good idea, even at this early stage. And brand experts have agreed that the Post Office is uniquely situated – both geographically and within the public consciousness  – to be able to provide trusted, reliable financial services amid so much economic turmoil.

The only thing stopping McFadden, Brown, Mandelson and their ilk is their neoliberal nostalgia. They are desperate to get back to business-as-usual without apology because it is too uncomfortable to admit that the Thatcherite economics with which they dramatically transformed their party has failed. While they wish that we could all just go back to the way things were, others are forging ahead with a new economy.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.