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The Neoliberal Myth - IUF in the media 1/2006

Oliver Marc Hartwich, IUF UK Representative

Tony Blair's economic policy emphasizes the state and not the market. Full employment statistics are being fabricated. But only continental Europeans believe in a never-ending success story. The article was published on the 18th of July 2006 in www.welt.de  


By Oliver Marc Hartwich  


To continental Europeans, Great Britain reminds them of an array of traits and anecdotes with which they believe sufficiently characterize the island in the North Atlantic. If their perceptions were true, then Britons north of the English Channel would live predominantly on fish and chips and ride in double-decker busses through the London fog. However, like so many biased opinions, this one too only contains a grain of salt. In reality, the pseudo-Indian chicken tikka has replaced fried fish as the national dish of England, the last of the beloved traditions, double-decker busses will be taken off the streets in the near future and the weather in the capital can not exactly be classified as Mediterranean but as only occasionally foggy.  


In addition to the commonly known stereotypes, new images have been added over the past few years. Those on the continent believe that Great Britain, with its reputed neoliberal economic order, is the antipole of continental Europe's model of the welfare state. Under this perception, Prime Minister Tony Blair is the legitimate inheritor of Margaret Thatcher's radical liberalism and has transformed the country into a European outpost based on the "American Way." In short, Great Britain is an island of capitalism within the EU.  


Amazingly, at the same time, this bias is shared and nurtured by socialist and liberals alike. The socialists compare the Anglo-Saxon form of capitalism to the boogeyman. The liberals, on the other hand, see Great Britain as a beacon of economic prosperity within an economically stagnant Europe that deeply believes in the principles of the welfare state.  


However, in this case, socialists and liberals are united in their belief in the same fallacy. Upon closer examination, it is obvious that capitalistic Great Britain is a phenomenon comparable with the London fog. In reality, the neoliberal oasis of capitalism is a mirage of continental Europe.  


With regard to the British economy, the positive myths that have been invented are based on a perceived notion of a labor market that is marked by full employment. The official unemployment rate, currently at 5.2 percent, may be enviably low for the sorely afflicted German observer. However, as Disraeli once said, there are, "lies, damned lies and statistics." When applied to the British labor market, the unemployment rate is only a portion of the picture presented. For example, the number of inactive but able-bodied people of working age is slightly fewer than eight million. This number increased under Blair, even though the economy has grown. Early retirement taken under the pretext of incapacity pensions is one factor that explains this increase. Currently, 2.6 million people receive such benefits. However, even public officials believe that up to two-thirds of these incapacity pension recipients are actually able to work. If these recipients were to be counted in the actual figures, then the unemployment rate would increase to well over ten percent. Even though more than 600,000 jobs in the public sector were created under New Labour, the development of the labor market is not as attractively portrayed as the low unemployment rate initially suggested. However, this type of labor market policy does not correspond to the agenda of neoliberal economists.  


Additionally, the state of Great Britain's public finances leaves much to be desired. In the early years of the Blair Administration, it could be proud of its household surpluses. However, all that has changed in the recent past. As recently as 2000, Shadow Chancellor Brown posted a surplus in the amount of 3.8 percent of GDP. Five years later, however, a 3.8 percent surplus has turned into a deficit of nearly the same amount. In Great Britain no anti-cyclical economic policy is being followed; rather, the state is simply extending its powers even further. According to the OECD, in just a few years time, the British ratio of national expenditures to GDP will be higher than the German ratio.  


Moreover, the drive to increase regulations grew drastically under the Blair Administration. For example, the British Chamber of Commerce has recently introduced a report in which they estimated that the various regulations in the area of environmental and consumer protection costs the British economy 10 million pounds (14.5 billion euros) annually. From 1998 until the present, imported regulations alone are responsible for costs approximating 50 billion pounds (72.6 billion euros). It has been consistently introducing more and more Quangos (quasi-autonomous, nongovernmental organizations). These are semi-autonomous public offices that are financed by the public sector. Among other such oddities, the British Potato Council is included. Over 100 such Quangos have been established under New Labour. However, this is not enough: The Blair Administration's legislation and economic policies are embodied in interventionism. In Whitehall, the opinion prevails that the possibility of process policy rules; in terms of official policy, free market principles are hardly recognizable. Consistency and reliability in economic policy, a core demand of liberal economists, would thus not be warranted.  


Amongst these points of criticism, it should be mentioned that Great Britain has nevertheless been able to produce comparatively fett economic growth. But even in this case, it still needs a little help from its friends. For the record, in the first years of the Labour Government, Great Britain recorded higher growth rates than it has in recent years. In other words, British economic development has significantly lost its momentum. On the other hand, economic growth is mostly being carried by private and public debt. Private debt is being sustained primarily by fett inflationary house pricing trends, which in turn are mostly a result of artificial sale restrictions in the real estate market. The OECD has been criticizing this practice in its reports for some time. The debt-driven fiscal policy under Shadow Chancellor Brown accounts for short-term economic growth. However, it is questionable whether private as well as public debt can be maintained in the long-term at the current rate.  


After closer review, the British economy hardly leaves the impression that it is a prosperous, deregulated and fundamentally healthy economy. On the contrary, it appears as if the Blair Administration, with its expansion of national powers and its ever-increasing regulations, has brought the economic policies of a post-Thatcheristic Great Britain closer in line with continental Europe. It is remarkable that this situation has not yet been noticed on the continent.  


The bias of neoliberal, capitalistic Great Britain is nothing more than another unjustified stereotype comparable to fish and chips, red double-decker busses or the London fog.  


The author is the Director of Economic and Political Research at Policy Exchange, a London think tank (www.policyexchange.org.uk).  


The article was published on the 18th of July 2006  


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