Peter Hain: we should all say "no" to neoliberalism, not just Greece

Syriza’s thumping win in Greece on an anti-austerity ticket should be a wake-up call, not just to the Brussels establishment, but to governments and opposition parties right across Europe, including Britain’s.

The almost wanton destruction of Greek society produced by the EU austerity programme triggered a popular revolt. It also did not work in its own narrow terms: Greek national debt went up, not down—which was the stated purpose of the truly savage cuts imposed.

Nobody in the political establishment seems to have been aware of J. M. Keynes’s seminal The Economic Consequences of The Peace, on the 1919 Treaty of Versailles which imposed crippling reparation—viz "austerity" in modern parlance—conditions on Germany. He argued compellingly this wouldn’t work. And it didn’t—to disastrous effect.

Yet where conservative parties have cheered on such austerity, mainstream centre-left parties have struggled to offer a convincing ideological critique of this agenda following the 2008 global banking crisis.

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They have slipstreamed the centre-right and right-wing parties, heading down the same austerity road at a slower pace, instead of (as Keynes showed in the 1930s) getting the economy back on the growth path as a much surer, and much less damaging, way of sorting out the public finances.

Although the neoliberal ideology which took root under Margaret Thatcher and Ronald Reagan from 1979-80 led to the banking crisis, that same ideology has clung on nevertheless. Today the "Westminster Bubble" of politicians, journalists and broadcasters throttles attempts to argue for alternatives.

Showing breathtaking chutzpah, Tories and other neoliberal advocates have even insisted that the entire global banking crash had less to do with Big Finance than with Big Government. The cause was too much public spending by the last Labour government—not too little public regulation.

And that, even after David Cameron and George Osborne in September 2007 publicly backed Labour’s spending plans and pledged to maintain them until beyond the 2010 election. Of course after the banking crisis they switched to denounce this very spending as the root of all economic evil: the big deceit of British politics. Both Tories and Lib Dems have chanted that same mantra incessantly ever since, also denouncing Nobel-prize winning economists who argue compellingly that growth, not savage cuts is the only way to build a strong sustainable economy.

The recent, government trumpeted, growth in Britain has been consumer, housing and debt-driven, whilst the trade balance continues to implode and industry weakens.

I argue for faster, fairer, greener growth because only an expanding economy can provide the resources needed both to tackle Britain’s huge structural problems and get the deficit down.

And, contrary to the stifling grip of neoliberal orthodoxy on the "Westminster bubble," faster, fairer, greener growth is eminently feasible. £30bn per year over two years of extra public investment in housing, in the social infrastructure, in training and skills, and in the low carbon economy would mean the government borrowing more today in order to borrow less tomorrow, by raising Britain’s economic growth rate.

Frustrated at the absence of a creed for the modern left, I revisited Anthony Crosland’s classic book, The Future of Socialism, first published in 1956. By freeing Labour from past fixations, and by giving its traditional values a contemporary appeal, he gave the party a controversial fresh focus, reviving its spirit and restoring its impatience for progress.

Crosland’s approach—essentially one in which the state sought to spread the benefits of economic growth within and without challenging the capitalist framework—underpinned Labour's approach until the global economic crisis of 2008. But the kind of capitalism we face today is a more internationally and financially integrated, more unstable and more unfair system than Crosland's generation ever anticipated: productive but prone to paralysis, dynamic but discriminatory. One whose self-destructive tendencies require far more radical responses than the neoliberalism of the post banking crisis era could ever provide.

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Over a 30-year period banking got out of control and become a law unto itself. Takeovers and mergers led to banks so big that governments couldn’t allow them to fail. Bankers bent rules to lend ever more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect. Facing this new, integrated, almost impenetrably complex structure of global finance, in truth governments were too small and too passive, not too big and too active.

My new book Back to The Future of Socialism tries to provide a practical political alternative. In developing a fresh perspective on the purpose and role of government in what conventional wisdom determines must be an era of austerity, I cite solid economic evidence on how Labour can get the economy growing again whilst putting the public finances back in order.

The book also explores how Labour must change, with a new policy programme and by becoming a different type of political party. It insists that Britain’s future must be at the heart of Europe leading a new progressive internationalism.

The Greek election has delivered a timely clarion call which may encourage sceptics to look afresh at these arguments.

Peter Hain’s new book Back to The Future of Socialism is published by Policy Press