The vote to leave the EU, the rise of the SNP, the demise of the Liberal Democrats, and Labour’s turn to the left mean British politics looks very different now than it did in 2008. But these changes are not the product of the 2008 crash per se; rather they are the result of the intense politicisation of issues that were already evident as fault lines when the crisis happened, writes Helen Thompson.
A decade after the 2008 crash, British politics looks very different than it did. Britain is on course to leave the EU; the Union has been stretched to near breaking point by the ascendancy in Scotland of the Scottish National Party over the Labour Party; the Liberal Democrats have sunk into near irrelevance; and the Labour Party has moved radically to the left and back towards being a mass membership party. Yet this rapid political change has dovetailed with an economy that in most structural respects looks considerably as it did in 2007, even as average real wages remain below what they then were. Despite the promises of the Coalition government to rebalance the economy towards the manufacturing sector, Britain remains a service-dominated economy in which finance plays a significant part. The economy also remains characterised by low unemployment, sizeable consumer debt, quite high levels of net immigration, and a significant current account deficit.
What is striking about the political transformation of the past ten years is the way much of it has arisen from the intense politicisation of issues that were actually already evident as fault lines before 2008. This pattern begins with Brexit. Prior to 2008, Britain had a singular political economy in regard to EU membership. It was outside the euro and had eschewed transition arrangements on freedom of movement, in good part because the Blair government had seen high levels of immigration as an anti-inflationary discipline in an economy that was more prone to inflationary pressures than those in the euro-zone. British membership of the EU worked by keeping the question of Britain’s participation in the European Single Market, including freedom of movement, separate from its non-membership of the euro.
What the fallout of the 2008 crash shattered was this compartmentalisation. It in part did so because British governments and the Bank of England could respond to the crash in macro-economic terms with policy tools that Britain retained in the 1990s and the eurozone states renounced. Under crisis conditions, the substantial differences between the macro political economy of British politics and those of the eurozone states could not be masked, and neither could the problems that London’s position as the offshore financial centre of the eurozone posed for other states.
The ascendancy of the Scottish Nationalists over Labour in Edinburgh and later at Westminster is also hard to explain if the 2008 crash is seen as a primary cause. Labour did extremely well in Scotland in the 2010 general election. What changed Scottish politics was the manner in which the end of Gordon Brown’s leadership of the Labour Party exposed the organisational hollowness of Scottish Labour and the inability of Ed Miliband to calibrate himself to Scottish politics at the time of the 2011 elections. The fact that under Jeremy Corbyn’s leadership Labour has made little progress in recovering its position in Scotland suggests that the pre-Corbyn party’s stance on fiscal austerity had a limited effect on this political change. Given the issues generated by the manner of Scottish devolution in 1999, including in relation to the governance of England, Scottish politics was always likely to be rendered unstable under conditions when Labour was no longer in power both in Westminster and Edinburgh.
Indeed, the issues caused by the rise of the Scottish Nationalists at the expense of Labour under conditions of asymmetrical devolution are also central to the demise of the Liberal Democrats. Certainly the Liberal Democrats lost credibility among their left-wing voters by entering into coalition with the Conservatives and supporting specific expenditure-cutting measures to reduce the budget deficit as well as for their U-turn on tuition fees. But what cost them their position as a necessary governing coalition partner for the Conservatives was their unwillingness to rule out a coalition with Labour in circumstances when such a coalition would, by necessity, also have to have included the Scottish Nationalists and their consequent electoral wipe-out in constituencies where their rival was the Conservatives.
Labour’s move to the left under Corbyn is the clearest case where what has happened is almost certainly dependent on the deterioration of real average wages and the fiscal response to the 2008 crash, given the way Corbyn was able to use austerity as an issue of attack against his opponents for the leadership in 2015. The internal rebellion among Labour members against the cadre of former special advisors that came to dominate the upper echelons of the party after Blair and Brown’s exit also arose in part from the inability of that group of politicians to respond to the wider political backlash triggered by the 2008 crash against the material corruption of parts of the political class by their relationship to the donor and influence-seeking class.
Nonetheless, a significant social basis of Labour’s mass membership and an important constituency of its electoral support in 2017 have also arisen from structural changes that were already occurring before 2008, namely the falling rates of home ownership among millennials and younger generation Xers and the large expansion in the number of those going to university without anything like a concurrent increase in graduate level jobs. In taking control of the party, Corbyn also hugely benefitted from the ongoing political fallout of the Iraq war. Fifteen years later it is still not plausible that anyone who supported that war can secure the leadership.
Paradoxically, Corbyn’s success as an insurgent politician takes us back to what 2008 revealed about the long-standing distinctive nature of Britain’s macro political economy. Labour is one of the few European centre-left parties that has not had a dismal time since the 2008 crash. British politicians can sound plausible talking the language of anti-austerity and borrowing to invest because Britain is not bound by the fiscal rules of the euro. Moreover, the reason why bond markets are not such an obvious constraint on the Corbyn economic project is precisely because the British monetary response to 2008 that non-euro membership made possible demonstrated that the Bank of England can support government borrowing without necessarily igniting inflation. Whether the policy tools that appear to be be available to the Labour government could be anything like sufficient to achieve economic outcomes that would benefit Labour’s new electoral coalition must remain a very open question, even before the (at least short-term) difficulties of transitioning away from EU membership are considered. But even the experiment, if and when it comes, will speak to the political consequences of the rather singular long-term trajectory of Britain’s macro political economy.
Helen Thompson is Professor of Political Economy at the University of Cambridge. Her latest book Oil and the western economic crisis was published by Palgrave in 2017. For a full list of publications, see here.
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As often, no discussion of what was happening in Conservative politics, only about the Left.
Could I point out – it’s the Scottish National Party.
The SNP – in 2007 – was the party of (minority) government in Scotland. I would suggest that the success of the SNP was more to do with their perceived competency and the implosion of Scottish Labour, along pre-existing historical and barely hidden fault lines, that have as much to do with the make up of Scottish Labour, as it did with anything that was going on at Westminster – which by and large, before the crash, was something of a sideshow.
Some good analysis here, but also some caveats needed:
1) Lots of things have happened in society and economy since the 2008 crash. It is simplistic to try to account for developments in British politics in the past few years using 2008 as the reference point.
2) It is not surprising that Britain remains a service-dominated economy in which finance plays a significant part, as services account for 80% of the economy. Unless a government takes draconian account to damage the service industry, it will remain dominant within lifespan of a parliament.
3) The Blair government did open floodgate to immigration, though it is unclear if the motivation was to control inflation. Central bank independence from 1997 and cheap imports from China since the late 1990s already ensured inflation was well controlled. A more plausible motive is that it is inherent to the New Labour project – internationalism and globalisation (remember the much trumpeted The Third Way at start of the century). Even today, leftwing parties in UK and Europe are still hesitant in accepting the negative impact of mass immigration on the economic and social welfare of people on the low end of the socioeconomic scale.
4) Thompson omitted reference to the 2011-2012 eurozone crisis, which most likely had a strong effect on perception of the EU project among Britons and Europeans hence was a likely albeit small contributory factor to Brexit vote. The Eurozone crisis did much to prolong the economic stagnation across the eurozone many years after the 2008 financial crisis, and the stagnation was a drag on the British economy, given importance of the eurozone to British economy.
5) The Conservatives election campaign in 2015 played the “coalition of chaos” card very well, and may have persuaded LibDem leaning voters to switch to Conservatives. However, without the benefit of hindsight, and the opinion pollsters repeatedly and confidently predicting impossibility of a Conservative majority, and high likelihood that the only viability outcome is a rainbow coalition government consisting of Labour, SNP, LibDem and possibly other parties, it would have been irrational for the LibDem prior to election day to rule out a coalition with Labour.
6) “the inability of that group of politicians to respond to the wider political backlash triggered by the 2008 crash against the material corruption of parts of the political class by their relationship to the donor and influence-seeking class.” It is not clear what is the “material corruption” Thompson is referring. The 2008 crash was a global phenomenon, with the financial centres of London and New York being the epicentres. During the eurozone crisis, many European banks were under severe stress owing to the depressed value of their holdings of government bonds in heavily indebted countries of Spain, Italy and Greece. Investors were worried about default from those countries. If the 2008 crash exposed material corruption in UK and USA, might the same charge be made against European countries? The Labour party had always been reliant on donations from the big trade unions who openly seek to influence government policy. This is an accepted feature of British politics for decades.
7) “Labour is one of the few European centre-left parties that has not had a dismal time since the 2008 crash.” The ideology of the Labour Party under Corbyn is best compared to France’s leftwing populist La France Insoumise under Mélenchon, and to other leftwing parties in European countries to the left of the centre-left governing parties in the past 2 decades. By comparison to other European parties, Corbyn’s Labour is clearly a leftwing party, not centre-left. Prior to his election, Corbyn’s stance on numerous policy issues lie on the peripheral of the Labour parliamentary party and the grassroots. My guess is Labour bucked the trend of steady demise of centre-left parties in Europe precisely because it is a leftwing not a centre-left party. When analysing Labour’s election prospects, it is important to remember right till early May 2017, after the local elections results when Labour performed poorly, opinion polls and commentators were predicting a landslide victory for the Conservatives. The British political landscape changed radically merely a month later. Hence any effort to understand why Labour bucked the pan-European trend of demise of centre-left parties, has to take a close look at factors which came to light in May & June 2017.
8) “the reason why bond markets are not such an obvious constraint on the Corbyn economic project is precisely because the British monetary response to 2008 that non-euro membership made possible demonstrated that the Bank of England can support government borrowing without necessarily igniting inflation.” It is premature to conclude that the UK bonds market and the sterling currency market won’t take fright if and when Labour under Corbyn and McDonnell takes power, and undermines Bank of England’s independence by something akin to the touted “people’s quantitative easing”. If there is a run on the pound, coupled with investors dumping gilts over fear of greatly increased government borrowing and large-scale nationalisation, it may well ignite inflation and much other economic ills.