One from the TUC*. One from an actual economist**.
See if you can guess which passage came from which?
Although these trends have been fuelled by technological change and the rise of a global labour market, their roots lie in a fundamental shift in Britain’s underlying economic and political philosophy. From the early 1980s, successive governments subjected the UK economy to an all-embracing economic and social experiment, a switch from welfare to market capitalism.
The post-war commitments to full employment, progressive taxation and inclusive state-provided welfare were scaled back, public services and enterprises were privatised, and trade union and employment rights were withdrawn. The balance of economic power shifted upwards to a new domestic and global financial elite that enforced a new business model – the aggressive pursuit of shareholder value aimed at maximising the short-term rise in the share price.
These ideas help make sense of the “British Disease” which was particularly virulent from the 1950s through the 1970s. The term refers to the relative economic decline which Britain experienced when other European countries grew more quickly and Britain was overtaken by many of them (Table 1). The symptoms of “British Disease” included debilitating industrial relations and self-indulgent management. In turn, this episode of British economic history, and the way in which it came to an end, offer further support for the claim that weak competition impairs productivity growth in advanced economies.
The experiment in market capitalism led to successive waves of cost-cutting, downsizing, industrial restructuring and short-termism, bringing decades of upheaval for much of the labour force while handing fortunes to the new financial oligarchy on a scale not seen since the late 19th century. The reasons for the upheaval, as set out by its supporters, were clear – to correct for the failings of post-war welfare capitalism, lift Britain out of its tepid entrepreneurial culture and bring renewed economic dynamism. Although the wealth gap might grow, all citizens would be better off through an expanded economic cake.
It has not worked out like that. Finance capitalism has a poorer record on most economic measures than the welfare model it replaced. The new market freedoms have brought slower economic growth, renewed instability and three deep-seated domestic recessions.
The weakness of competition in product markets interacted with two aspects of British exceptionalism in terms of institutions, namely, corporate governance, and industrial relations. The former was characterised by the absence of strong shareholders and an ineffective market for corporate control, the latter by the presence of craft control, multi-unionism, and legal immunities which underpinned trade-union bargaining power. The evidence is that, in these circumstances, weak competition led to poor productivity outcomes.
Despite the scale of its failure, the market model remains the economic orthodoxy, domestically and globally. Yet to tackle the current crisis and reverse the instability cycle requires a radical transformation of Britain’s political economy built around a new business and economic model. This does not mean a return to the pre-1979 mix of weak corporatism, state ownership and poorly targeted industrial activism.
The results of the “Thatcher Experiment” in the 1980s make the case and paved the way for reversing relative economic decline. Competition was much strengthened by ongoing trade liberalisation, deregulation, and discontinuing 1970s’ industrial policy. As competition strengthened, there were major changes in industrial relations which were associated with organisational change, together with divestment and restructuring in large firms.
At the sectoral level, stronger competition and greater openness were correlated with improved productivity performance. As the age of information and communication technology came along, Britain was able to embrace the opportunities associated with rapid diffusion of the new technologies, which required big changes in working practices and management hierarchies, better than its continental-European peer group. This would not have happened with 1970s-style industrial relations and a heavily-regulated service sector.