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We are currently in a political moment which could lead to a major paradigm shift in economic policy. There were similar moments twice in the last century, in the years around 1945 and 1979. In each case, a major economic crisis – or series of crises – led, in the words of the IPPR Commission on Economic Justice, to “a significant reappraisal of how the economy works, and to a subsequent large-scale change in economic policy”.

What are the economic, intellectual and political similarities between these two moments? And what might they teach us about the moment we are in today?

1. The conceptualisation of crisis

Each of these transformations was preceded by a period of mounting problems, which came to be conceptualised as a ‘crisis’. The ‘hungry 30s’ and the second world war preceded the watershed moment of 1945. For 1979, it was the widespread talk of ‘decline’ that picked up from the late 1960s, the stagflation of the 1970s and trade union militancy culminating in the Winter of Discontent of 1978-9.

In each case this ‘crisis’ was in part generated by problems in the British economy and economic policy; but it was also precipitated by external economic conditions, such as the Wall Street Crash of 1929, or the oil price hikes of the 1970s.

2. Out with the old

In both the 1930s and the 1970s there was a sense that traditional policy frameworks were inadequate to tackle Britain’s problems. In the 1930s that was the orthodoxy of small government, free trade and the Gold Standard. In the 1970s it was the system of bounded national economies and, in domestic policy, an extensive welfare state, corporatism, and counter-cyclical demand management to keep unemployment low.

3. Intellectual responses

In each case, this period of ‘crisis’ gave rise to sustained critique and debate among intellectuals, politicians and activists. There was never a sense that the outcome was ‘obvious’ – it was always highly contested, with a multiplicity of ‘solutions’ (some of which were basically the status quo) on offer.

The 1970s has been called a ‘marketplace of ideas’ because there was such a varied and heated set of debates going on. In both eras, prominent thinkers such as Keynes and then later Hayek and Friedman emerged, whose ideas – which they had been peddling for quite some time – came to seem to many to represent the best response to the ‘crisis’. They gave a convincing account of what the ‘crisis’ actually was, and what caused it, as well as the solutions. These ideas were then taken up by politicians looking for answers.

In each case, major shifts in the global economic and institutional environment, outside the British government’s control, were also significant. And in each case, alternative solutions were discarded, such as the Labour left’s Alternative Economic Strategy of the 1970s.

4.Lack of clear party alignment

These were complex and messy debates. In both 1945 and 1979, we find bothheated partisan conflict between left and right, andsurprising moments where figures from left and right found common ground across the political spectrum.

For example, Harold Macmillan’s The Middle Way (1938) advocated nationalisations on a scale at least as large as those proposed by Labour. And in 1976, Labour Chancellor Jim Callaghan abandoned Keynesianism in favour of monetarism (control of the money supply), famously telling the Labour party conference that it was no longer possible to “spend our way out of a recession”.

5. New parties

Because of this lack of clear party alignment, we find in each period a propensity for MPs to cross the floor and to form new parties and alliances more often than in other periods. Take, for example, Oswald Mosley leaving the Labour Party to form the British Union of Fascists in the 1930s, or the breakaway of the Social Democratic Party in 1981.

Our political moment

As the Commission on Economic Justice’s report argues, we find ourselves at a similar conjuncture now. Gramscian analysis would call this an ‘interregnum’.  At the level of ideas, there is widespread talk of deep problems in British politics, society and economics. Remarkably few people in the mainstream of politics will wholeheartedly defend the core elements of neoliberalism. Politicians across the political spectrum are (to varying degrees) searching for ways to break out of this paradigm.

Debate about the nature of our problems and their possible solutions often disrupts the traditional left-right axis of politics. On the left, the Labour leadership is increasingly critical of contemporary capitalism and has set out a number of radical policy ideas, through its 2017 manifesto and work on Alternative Models of Ownership. Some of these ideas have also been promoted by those on the centre and centre-left of Labour, including Liz Kendall’s advocacy of workers on boards in 2015 in her leadership campaign, and more recently Rachel Reeves in ‘The Everyday Economy’ pamphlet, published in 2018.

There are even some themes in common with the centre right, as in Theresa May’s 2016 conference speech where she talked about putting workers on boards, signalled the importance of industrial strategy, and made a critique of globalisation. Of course, these themes got lost after the 2017 general election stripped May of her majority and plunged her into even more difficult Brexit negotiations.

A final parallel with those previous moments of economic paradigm shift is that we live in a time of the formation of new ‘groups’ and of MPs defecting from their parties.

The time may be ripe for a major paradigm shift, but an examination of history suggests that this is far from inevitable. This is despite the fact that after a paradigm shift occurs it may well come to be seen as ‘common sense’ to many.

As we learn from the examples of 1945 and 1979, in the context of a Gramscian ‘interregnum’ existing categories no longer map effectively onto social realities; the political force that comes well out of such a situation is that which is able to convincingly define the crisis and offer clear solutions.

Here the Commission’s report makes a hugely significant intervention: it defines precisely what the crisis consists in, showing how our economy is underperforming both on traditional economic markers of success, and in delivering economic justice as defined in the report. It analyses the causes of this underperformance, setting out a vision for both how economic policy goals should be reframed and how a sweeping set of policy reforms has the power to deliver those new goals.

It is this both-and that is so important, moving us past technocratic tinkering and linking big political and ethical questions to the meat of policy. It is important to recognise, though, that the report is situated in the ‘marketplace of ideas’ of the 2010s, and what history also suggests to us is that it takes political leadership to pluck big ideas from that marketplace and sell them to the British electorate. 

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