grace blakeley 3

CHAPTER SIX THE POST-CRASH WORLD

The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear — Antonio Gramsci.

Ten years after the crisis began, Grenfell Tower burned to the ground.1 The fire started on the fourth floor of the tower block and, within an hour, it was rising up the external walls at an alarming pace. The building had no central fire alarm. Ineffective fire doors meant that the flames quickly entered the block, consuming the hallways and the stairwell. By the time the firefighters arrived, the flames were so strong that those above the fourth floor were trapped. Seventy-two people perished in the blaze, making it the UK’s deadliest residential fire since the Second World War. The youngest victim was a six-month-old baby, except perhaps for the pregnant woman whose child was stillborn due to the trauma.
Residents had spent years warning of the dangers posed by the building’s poor fire safety standards. An inquiry later revealed that the cladding on the building’s exterior, which had been erected in 2012 to improve its appearance, was highly flammable: a more fire-resistant option had been ruled out because it was too expensive. Grenfell Tower didn’t even have fire sprinklers. Many argued that financial difficulties caused by the government’s austerity programme had made it impossible for the council to respond to the residents’ concerns. But in the year of the Grenfell fire, the Royal Borough of Kensington and Chelsea wrote to residents proudly announcing that all top-rate council tax payers would receive a £100 reimbursement. Over two years later, many victims of the fire still have not been found adequate housing. There have been twenty suicide attempts amongst former residents since the blaze. The council and the tenants’ management organisation are being investigated for corporate manslaughter. And yet the only arrests related to the fire have been those of the men and women found burning an effigy of Grenfell on bonfire night 2018.
What happened at Grenfell was a violent crime committed by elected officials in one of the wealthiest parts of the country. With tax revenues flowing from the pockets of its millionaire residents, the lives lost at Grenfell were, and are, seen as expendable. As is now clear from the inquiry, Kensington and Chelsea London Borough Council had more than enough resources to respond to the concerns raised by residents and independent observers before the fire, but they chose not to. Instead of spending a few thousand pounds on fire-proof cladding, or installing sprinklers, or buying new fire extinguishers, the council chose to deliver a £100 tax rebate to some of its wealthiest citizens. In the end, the towering inferno at Grenfell has emerged as a symbol of the ruthless and unnecessary cruelty shown by the British state to its most vulnerable citizens as part of the austerity programme introduced in 2010. Grenfell is not a tragedy that can be chalked up to a lack of resources, but to the state’s reckless disregard for the lives of those deemed unworthy of its support.
Grenfell is perhaps the most visible indication of the impact of austerity, but it is by no means the only sign of the burning injustices that have become visible in British society since the financial crisis. As highlighted by the recent report of the UN’s rapporteur, austerity has taken the “highest toll on those least able to bear it”.2 Foodbank usage is at its highest level on record3: in the areas where Universal Credit has been rolled out in full, it has climbed by 50%.4 The UK is experiencing a homelessness crisis — homelessness rose by 16% in 2016 and the number of people sleeping rough has doubled between 2010-2016.5 Four million children are now living in poverty, and 123,000 children are now homeless — an increase of 65% since 2010.6 The life expectancy for homeless people in the UK is forty-three for men and forty-seven for women — lower than in some of the poorest countries on the planet.7
The UK — the fifth wealthiest economy in the world — has more than enough resources to meet the basic needs of all its residents. But instead of taxing the wealthy to pay for the crisis they helped to cause, the government pumped billions into the UK’s finance sector whilst cutting the public services upon which ordinary people depend. The actions of the British state, locally and nationally, demonstrate quite clearly that politicians consider the deaths of those who died at Grenfell, like those killed through Universal Credit and cuts to social care services, a small price to pay to provide tax cuts for the rich. Today we live in a world of socialism for the banks, and austerity for everyone else.
But this model is no longer just creating hardship for the poorest, it is now starting to impact the prospects of even the property-owning classes whose support is required to maintain the status quo. Without the rising debt levels that disguised falling wages and the retreat of the state before the financial crisis, the economy is stagnating. Growth is slow, investment is low, and people are having to work ever harder to maintain a lower standard of living. Perhaps most dangerously, young people today anticipate that they will be no better off than their parents. They are acutely aware that they are not only growing up into a stagnating economy, but also a decaying planet. Slowly, the political–economic bargain that underpinned finance-led growth is coming apart, and the political turmoil experienced in the Western world since the crash is just one symptom of its demise.
As the contradictions of finance-led growth escalate, the coalition of those who benefit from its continued existence will shrink. The chorus of voices demanding a complete transformation of our economic and political institutions will mount. The defenders of the system will find themselves in an isolated minority; and they will sink to ever lower depths in an attempt to defend the status quo. We inhabit a revolutionary moment. What comes next will depend not only on the ideas that are lying around, but also the existence of a force powerful enough to champion them.
The Long Recovery

The recovery from the financial crisis has been the longest of any major crisis since the Great Depression.8 Whilst GDP recovered eventually, peoples’ wages did not. Today, we are living through the longest period of wage stagnation since the Napoleonic wars. Most people are earning no more today than they were in 2007 — some are earning less. Of course, the figures have not been so gloomy for everyone. The wealth of those on the Sunday Times Rich List — which measures the wealth of the richest one thousand people — doubled between 2008 and 2015.9 After a decade of stability following the rapid increase under Thatcher, inequality has now started to rise once again. In 2018, incomes for the poorest fifth contracted by 1.6%, whilst average incomes for the richest fifth rose by 4.7%.10
Many have tried to counter this gloomy narrative on incomes and wages by pointing out that the UK is currently experiencing “record” levels of employment. Yet the proportion of families experiencing in-work poverty has increased. This is partly due to the stagnation in earnings described above, but it also comes down to changes in working practices that have taken place since the crisis. Work has not just become less well-paid; it has also become more insecure. The numbers of people working part-time, on zero-hour contracts or on non-permanent contracts have all increased. Many of those working in the “gig economy” for companies such as Uber or Deliveroo also sacrifice benefits such as pensions and sick pay, meaning that their effective remuneration is even lower than what is captured in the headline wage statistics. Today, eight million people in poverty live in a working household.11 The link between employment and rising living standards has been severed.
High levels of employment have also coincided with a stagnation in productivity — the amount of output produced for every hour worked. Productivity in the UK is 13% below the G7 average, having stalled since the financial crisis. One major reason for this is the declining productivity in financial and professional services. These previously highly profitable industries drove increases in productivity that were eventually shown to be illusory, revealing poor rates of productivity growth in much of the rest of the economy.
In fact, poor productivity in the rest of the economy was often driven by the finance sector itself. Capital inflows into UK assets pushed up the value of our currency and decimated the highly-productive manufacturing sector centred in the regions. Today the skills, capital, and supplychains that once supported the UK’s manufacturers have deteriorated to such an extent that the falling exchange rate seen since the crisis has failed to revive our manufacturing base. London’s productivity is over 30% above the national average, whilst productivity in the least productive regions and nations is up to 20% below it. With manufacturing in decline, non-professional employment today is concentrated in the much less productive services sector — much in low-pay sectors such as retail and hospitality. The UK’s “long tail” of unproductive firms, centred in the regions, is a significant drag on overall productivity.
Falling investment, another consequence of financialisation, is also driving low productivity. Investment in fixed capital — which as highlighted in Chapter Two was already falling before the crash — has fallen again since 2008. The UK’s total rate of gross fixed capital formation — investment in tangible assets like machinery and technology — is, at 17%, five percentage points below the OECD average.12 Private investment is lower than the rate of depreciation, meaning businesses aren’t replacing outdated capital, effectively reducing the amount they are able to produce. In fact, private investment in fixed capital has fallen from 11% of GDP in 1997 to 8% in 2014. Rather than investing their earnings, UK corporations are “saving” — either by sitting on large cash piles, or by investing in financial assets themselves. When it comes to public investment, the former Chancellor’s decision to include investment spending in the calculation of the deficit has led to a particularly steep decline since the crisis. Not only is the UK failing to update our physical infrastructure, but existing infrastructure is deteriorating faster than it is being replaced.
And on top of all this, British consumers and corporations are now sitting on a huge mountain of private debt. Household debt reached 148% of households’ disposable incomes in 2008, before falling to 127% by 2015 as households tried to pay off their debts. But since then, it has started to rise again, reaching 133% in 2018.13 Corporate debt, which peaked at 101% of GDP in 2009, has also started to rise again, reaching 85% of GDP in 2017.14 As a ratio of profits, this means that UK corporations owe 6.5 times more in debt than they earn in profits each year, making UK corporations some of the most indebted in the advanced economy group.15
Similar trends prevail in the US. Productivity has been particularly lacklustre, prompting many analysts to question the origins of the US’ “productivity puzzle”. US workers’ purchasing power is no higher today than it was in the 1980s, meaning living standards have effectively stagnated over forty years.16 US public and private investment as a percentage of GDP is still lower than it was before the financial crisis.17 US household debt has stabilised since the crisis, but corporate debt has reached unprecedented highs. Total credit to non-financial corporations peaked at 73% of GDP in 2017 on the back of loose monetary policy, as described later in this chapter.18
Secular Stagnation or Crisis of Capitalism?

These trends are puzzling to mainstream economists, who have come up with all sorts of theories in an attempt to explain the post-crisis malaise in Anglo-America. Before the crash they were convinced they had figured out how to tame the financial cycle and eliminate boom and bust. But today, economists are looking back on the pre-crash period without these rose-tinted glasses. Amongst the most prominent is Larry Summers — former World Bank Chief Economist and Treasury Department official. In November 2013, Summers delivered a speech to the IMF in Washington, in which he warned that the post-crisis economies of the global North were suffering from a peculiar affliction, one not sensitive to traditional medicine — an affliction he termed “secular stagnation”.19
But whilst its symptoms are now more obvious, secular stagnation is not a new disease; it had been lurking in remission for decades. During the pre-crash period, unprecedented levels of lending were the only thing keeping the US economy going, and this was only sufficient to produce “moderate economic growth”. Similar trends prevailed in the other most financialised economies, not least the UK.
Summers argued that these trends could be attributed to a long-term fall in the amount of output that advanced economies could hope to produce, driven by slowing technological change and demographic shifts. The pre-crisis boom had merely disguised an underlying trend towards stagnation that had set in decades earlier. And since the crisis, the problem has only grown worse. Whilst GDP growth, wages, and employment have all fallen, Summers’ biggest worry was productivity — the long-term driver of economic growth in capitalist economies.
Summers’ remarks have divided economists. Some, like Kenneth Rogoff, argue that slow growth and productivity are to be expected in the wake of a massive financial crisis.20 Households and businesses will all be attempting to deleverage at the same time, creating a Keynesian “paradox of thrift” — the kind of reverse economic multiplier caused when governments, households, or businesses cut their spending. This effect is exacerbated during what Richard Koo calls a “balance sheet recession”, caused by excessive lending. But others argue that the paradox of thrift can’t explain sluggish growth on its own, not least because the slow-down in growth rates appears to have preceded the financial crisis.
In fact, the asset price inflation of the pre-crisis period and the large profits generated by the finance sector disguised a long-standing slowdown in other parts of the economy. Some have argued that this can be attributed to a slowdown in technological change.21 Others point to demographic change — falling birth rates and rising life expectancies associated with rising affluence in the global North have led to a fall in the working age population that is depressing long-term growth rates.22 But all those who support the secular stagnation hypothesis converge on one point: without extraordinary interventions from the state such as quantitative easing, many economies in the global North appear to have ground to a halt. Today’s economists have all converged on one burning question: What is going on?
Just like the theory of the great moderation itself, the secular stagnation hypothesis takes for granted many of the assumptions of neoclassical economics. Take the argument about wage stagnation. Neoclassical economists argue that workers are paid a wage equal to their marginal productivity. If a worker is paid a wage less than the value they create for the company that hires them, competition over workers will mean that another company can poach the worker by offering a slightly higher wage, and still make a profit. The pressures of competition will ensure that wages converge around the marginal productivity of the average worker. All in all, this should mean that, on aggregate, wages rise with productivity. The reason for the post-crisis wage stagnation is that productivity has stagnated — whether this is due to demographic change or a slowdown in the rate of technological progress.
But this theory cannot explain the decoupling between wages and productivity seen all over the global North before the crisis. Even neoclassical economists themselves can’t quite say why the marginal productivity theory of income distribution — which is the name of their particular understanding of the relationship between wages and productivity — should be true. When asked to justify his assumptions about the relationship between productivity and wages, the architect of one of the most famous neoclassical growth models — Robert Solow — remarked: “I could not find a good reason, but since theory and facts were broadly in accord, nobody bothered much with the assumption”.23 Today, with facts no longer in accord with the assumption, it might be time to rethink the theory. What if, rather than slowing productivity driving falling wages, falling wages are leading to falling profits, lower levels of investment, and slowing productivity?
Marx correctly observed that workers do not tend to receive a wage equal to their marginal productivity. In fact, the difference between what a worker is paid and the value they produce for the capitalist is what constitutes the latter’s profits.24 Marx’s insights are derived from a much more sophisticated understanding of the relative power of labour and capital than that shown by neoclassical economists. Whilst neoclassical economics largely excludes power, Marx’s economics is — at its core — based on an understanding of the disparities of power that exist between owners and workers in capitalist economies, and particularly at the level of the firm. The explanation for our current malaise will not be found using abstract economic models, because its root causes are political.
Since the 1970s, capital has become much more powerful than labour in Anglo-America.25 In the post-war period, strong labour unions and state commitments to maintaining full employment meant that workers could demand wage increases that were in line with productivity. As a result of the increase in the power of labour relative to that of capital, labour got its way. But this was an historically unusual situation — as Thomas Piketty points out, the “golden age” of capitalism was the exception, not the rule. After the 1970s, rising capital mobility, financial deregulation, and changing models of corporate governance have increased the power of shareholders — particularly big investors — in the management of corporations. Workers have been disempowered through simultaneous anti-union legislation and the reversal of the Keynesian economic policy which provided for full employment. As a result, capitalist states have reverted to their historical norms, with the owners of capital taking an ever-greater share of the profits of production, leaving the workers with much less. Efficiency wage theory suggests that falling wages may be part of the reason for falling productivity, not the other way around.
But these firms weren’t investing their newfound profits in production, which would have led to longer-term increases in productivity, as evidenced by the falling rates of investment in fixed capital outlined above. Instead, newly-empowered shareholders focused on maximising the amount they were able to extract from corporations by increasing dividend payments, whilst protecting the medium-term profitability of their corporations through financial investments and mergers and acquisitions.26 Huge monopolies emerged, able to benefit from “monopoly rents” at the expense of ordinary consumers. The finance sector, meanwhile, skimmed its income off the top of this economic model through interest payments, fees and other forms of extraction. Landlords, and the newly-created outsourcing giants, engaged in similar forms of extraction based on their provision of services that were once much cheaper or even free. These trends led to another change in the balance of power — this time, amongst different types of capitalist. The “rentier” class has increased its share of national income, encouraging other capitalists to behave more like rentiers themselves.
A falling wage share, rising inequality within the wage share, and a rising rentier share can create a problem of money “stuck” at the top of the income spectrum. Keynes showed that the poorest in society have a much higher marginal propensity to consume any extra income — meaning that the poorer you are, the more likely you are to spend extra income than you are to save it. More money being saved rather than consumed means less money being spent on the goods and services produced by businesses, which over the long term reduces profits.
Over the short term, these trends didn’t appear to have much of an impact on productivity or profits — largely because of the generalised asset price inflation and financial deregulation that increased firms’ profits and consumers’ spending power. Privatised Keynesianism disguised the downward pressure on wages. Rising financial profits and rising asset prices disguised falling returns on investment in fixed capital amongst corporations. But when this bubble burst, the stagnation in productivity implied by slowing investment and stagnant wages was exposed. Anticipating lower future demand, since the crisis, businesses have reduced investment, creating a classic Keynesian downward-spiral. Rather than investing in capital that would increase their future productivity, these businesses will take on cheaper and more flexible labour or plough their earnings into property and financial markets.
At the same time, financialisation has allowed Anglo-America to play an extractive neo-colonial role in the international system, to the detriment of workers in the global North and the rest of the world.27 Forced to open up their markets to international investment in the 1970s and 1980s, many states in the global South have seen capital flee their domestic economies in search of higher returns in the booming asset markets in the US and the UK.28 This has left these states starved of domestic capital and relying on foreign domestic investment, leaving them stuck in a position of permanent dependence and underdevelopment. A significant chunk of the capital flight out of the global South took the form of illicit financial flows into tax havens, often with the City of London acting as a key conduit.29 The global South lost more than $1trn in illicit financial outflows in 2012, with the majority coming from Africa.30 But the Anglo-American economies have also suffered from the imbalances this situation has brought about. Capital flows pushed up the value of their exchange rates, suppressing domestic demand by reducing the value of the last item in Keynes’ equation: net exports. Facing a highly uncompetitive exchange rate, the British and American trade deficits have risen to record heights.
These political economic factors are what explains secular stagnation. The combination of a falling wage share of national income, a rising rentier share, and a private debt overhang has led to falling rates of consumption by households, feeding into lower investment by businesses — already constrained due to the rentier logic of shareholder value orientation. Together, these factors have created a severe problem of insufficient domestic demand, which has only been exacerbated by austerity in the UK. Workers, businesses, and governments haven’t been spending enough to keep the economy afloat. Similar trends pertained in the US. In the lead up to the crisis, these patterns were disguised by the creation of new debt. Consumers may not have been paid enough, but they were able to carry on spending anyway, fuelled by increases in debt and asset prices. Capital inflows sustained incredibly high spending in Anglo-America, whilst also harming their exporters and manufacturers. But when the debt dried up, the long-term tendencies revealed themselves. Almost as soon as the chimera of asset price inflation and the speculative profits of the finance sector evaporated, the Anglo-American experiment in finance-led growth ground to a halt.
Austerity Economics

Ordinarily, in such a context, one would expect the government to step in and pick up the slack. During times of insufficient demand, Keynes argued that states could mitigate the doom-loops of falling investment and consumption by lowering interest rates and boosting government spending. During the golden age of capitalism, this is exactly what social democratic states all around the world did. But today, they’ve chosen to implement austerity, which has made things even worse.31 The IMF — which famously imposed extremely harsh austerity programmes in the global South in the 1970s and 1980s — recently released a report concluding that “the benefits [of austerity]… are fairly difficult to establish”, but “the costs in terms of increased inequality are prominent”.32 Over the short term, the fund argues that shrinking the state by 1% of GDP increases the long-term unemployment rate by 0.6 percentage points.
In fact, after nine years of self-defeating austerity, the UK has some of the worst public finances in the global North.33 Rather than investing in future growth, the state has sold-off revenue generating assets to pay down current debts, shrinking its future income. The wealth of the public sector has fallen by almost £1trn — equivalent to 50% of GDP — since the crash, primarily due to privatisation and asset sales. A lack of public investment, and fire sales of public assets, have severely damaged the productive base of the British economy. The state’s unwillingness to build roads, schools, and universities has led to a deterioration in physical, human, and intellectual capital. Far from reducing the debt burden on future generations, failing to invest in our productive capacity now implies that in the future the British economy will be much poorer than it is today. This is the real legacy of austerity that will be left to our grandchildren.
Meanwhile, the state’s retreat from the provision of public services and the mass sell-off of social housing have increased the cost of living for households, without increasing productive investment. Rising utilities bills, transport costs, and care costs have all eaten away at households’ already stretched incomes. The increase in house prices seen since the crash has driven up rents far more than it has increased the supply of affordable housing. The decline in the social housing stock has pushed many people into temporary accommodation. Some, like Jerome Rogers, have been driven into crippling debt in an attempt to meet their basic needs — allowing lenders to benefit from the deterioration of our collective wealth. Those who are wealthy enough to do so have opted to save more, knowing that they will be forced to fund their own retirements and care needs. The individualisation of risk has only increased disparities of wealth, leaving some facing crippling debt and others sitting on huge piles of unproductive cash, much of which is channelled into real estate or financial markets, making the problem even worse.
What, then, is the point of austerity? Some argue that there just isn’t any money left. The government is the same as a household, and therefore cannot spend more than it is earning in tax revenues. The debt accrued from the financial crisis must be repaid. If we fail to honour our debts, we will end up like Greece. But this analogy was always utterly bogus. The only countries throughout history that have experienced sovereign debt crises are those with debts denominated in a foreign currency (like Argentina), or without control over their own monetary policy (like Greece). Wealthy states with strong tax systems that borrow in or issue their own currency are all but unable to default. Investors treat these states’ government bonds as some of the safest assets in the financial system. In fact, through quantitative easing, the British state now owns as much as a third of its own debt, which has reduced the cost of borrowing to historic lows. The idea that the UK is on the verge of a sovereign debt crisis is laughable. If anything, investors are demanding more government bonds than states like the UK are willing to issue.
The second argument for austerity is that high levels of debt curb economic growth. This argument has featured heavily in the debate about austerity thanks to Carmen Reinhart and Kenneth Rogoff, the authors of This Time Is Different: Eight Centuries of Financial Folly, the book used to justify George Osborne’s austerity agenda. This Time Is Different argues that above a particular level — 90% of GDP — government debt has a negative and statistically significant impact on growth. This argument has a long history. David Ricardo wrote that government borrowing never increases growth because perfectly rational, utility-maximising agents would respond to an expansion in government spending by saving because they anticipate tax hikes down the line. But this analysis rests on a flawed view of human psychology, which fails to account for the impact of uncertainty on human behaviour. Periods of overexuberance follow periods of underconsumption, which is the dynamic that characterises the rise and fall of the business cycle. Consumers often over- or under-spend and businesses often over- or under-invest — Keynes believed that the state’s role was to mute these ups and downs. An expansion in government spending or a reduction in interest rates during a period of underconsumption increases business’ profits, kick-starting confidence, and encouraging economic actors to start spending again.
Understanding the politics of austerity requires looking at more than its alleged economic rationale: it requires looking at who benefits. As we saw from Kalecki’s analysis, a capitalist state that commits too much of its power to supporting working people threatens to upset the delicate balance between the power of capital and labour. The existence of a reserve army of labour is a critical guarantor of business’ profits — and their political power. Even if higher profits would be generated within a system that supported full employment, the owners of capital would prefer lower profits and greater control over the workforce. One might respond to this by pointing out that employers today have far more power over workers than they did in the 1970s, and an increase in state spending would be unlikely to totally upset that decades-long balance. But these political problems are not taking place in isolation. As highlighted above, many businesses are struggling to make profits in the current economic climate. Employers are currently dealing with this problem by reducing workers’ wages and precaritising employment — an increase in labour’s power would threaten their capacity to heap the costs of the crisis onto workers.
But the bargain between capital and the state becomes even more fragile under conditions of financialisation.34 High and rising levels of inequality are the source of the savings that investors channel into asset markets. If, rather than wealth being concentrated at the top and debt replacing it at the bottom, these savings were reinvested into production, this pool of wealth left over for speculation would be eroded, even though the economy as a whole would perform much better. Less capital directed into finance would restrict mortgage lending and lead to a fall in house prices, which would erode the wealth and incomes of property-owners, whose support is needed to maintain the financialised status quo. Any increase in state spending also threatens the collusion between the rentier class and the state — too great a share of state spending in national income, especially if it is not undertaken under the auspices of the private sector, closes off another potential avenue for financial profits.
As it turned out, Reinhart and Rogoff were wrong — their spreadsheets contained a glaring error. When their analysis was corrected, they found no generalised relationship between government debt and growth rates. This, of course, didn’t impact the behaviour of politicians, because austerity was never really based on evidence. It was a political project designed to keep working people in a position of subservience, even as the owners of capital continued to wreak havoc on the economy. The statistics show this brutal political project in action, with the poorest bearing the brunt of cuts in the UK since 2010.35 The greatest losses have been felt by working-age families with children — a low-income family with two children will be £2,800 worse off per year in 2020 than 2010 due to the benefits freeze — and single parents, who are losing £700 per year.36 Meanwhile, the wealthy gained 80% of the benefits of the tax changes introduced by George Osborne in 2016, whilst the poorest third of households shouldered nearly 70% of the costs, in what amounts to “a significant transfer from low and middle income households to richer ones”.37 After nine years of austerity, the state that has emerged the state is not just smaller, it has been fundamentally reshaped.
The government is now finding it harder and harder to shield key electoral constituencies from the pain. With transport costs now one of the largest items of expenditure for the average family, Britain’s crumbling infrastructure is a major political problem.38 Many roads are in a state of disrepair. The rail network is eye-wateringly expensive and low quality — especially outside of London. Low levels of infrastructure investment are affecting productivity — and are a big part of the explanation for the gap in productivity between London and the rest of the country.39 But they are also affecting peoples’ mental and physical health — one recent report showed that long commutes are linked to stress and depression, and that a commute of longer than thirty minutes adversely impacts workers’ productivity.40
Amongst working families, cuts to education are eroding support for the status quo. The introduction of academisation and free schools — as well as Theresa May’s flirtation with reintroducing grammar schools — are all aimed at stemming the rising tide of anti-austerity sentiment. If the government can create enough segmentation within the education system, it can ensure that the budget delivers effective public services to middle earners alongside poor teaching, few resources, and crumbling school buildings for those at the bottom of the income spectrum. Permanent exclusions have increased sharply since 2010.41 Not only is this creating a form of class segregation in our schools, it is contributing to another problem of concern — rising crime. Rising expulsions, cuts to youth services, and the defunding of children’s social care have all conspired to lead to a rise in violent crimes being committed by young men.42 The dramatic increase in knife crime is perhaps the most visible example of this trend.
The NHS was protected from direct cuts, but it has continued to suffer from underfunding, even as the rising poverty and inequality associated with austerity has worsened public health outcomes. According to the British Medical Association, the NHS is at breaking point: NHS trusts had a deficit of £960m in 2018.43 The number dying on NHS waiting lists has risen by ten thousand over five years, and more than two million people waited over four hours in Accident & Emergency wards in 2017. Government mismanagement has alienated junior doctors — and even some consultants, senior management, and GPs, upon whose support they could usually rely. Another sign of strain is the pressure being heaped on working people who cannot afford to pay for care for their elderly parents. Adult social care budgets have been slashed, meaning local authority care is available to fewer people. These cuts are driving many poorer elderly people — and their children — into poverty. The wealthier are simply seeing their savings — and their children’s inheritances — eroded. On both counts, austerity is reducing support for the status quo.
Property-Owning Oligarchy

Over the longer term, the political establishment faces a far more important — some might say existential — question: what to do about housing. As we’ve seen, home ownership is the crux of the electoral bargain that maintained Thatcher’s power and has retained its importance as an indicator of voting behaviour ever since. It is also a key source of economic rents under finance-led growth. Whether or not one owns one’s own home is still one of the best predictors of voting intentions: in 2017 53% of voters in property-owning households voted Conservative, and 51% private renters voted Labour.44
When house prices started tumbling after the financial crisis, many thought we might be living through the end of the British housing bubble. But house prices, and household debt, have continued to rise since 2007, propped up by extremely loose monetary policy.45 Quantitative easing was introduced on the basis that it would increase banks’ liquidity and therefore boost lending, but of course banks have had few restrictions on the amount they are able to lend since the 1970s. Instead, QE has worked through the “portfolio rebalancing” channel.46 By reducing yields (returns) on government bonds, QE would encourage investors to purchase higher-risk, higher-yielding financial assets, which would make those who owned these assets wealthier, encouraging them to spend more and leading to a boom in financial markets — particularly equity markets — as well as pushing up house prices.
Rising house prices have helped to maintain the image of the property-owning democracy, but the core of this idea is now rotten. The expansion in home ownership, and accompanying increase in prices, seen between 1980 and 2007 in the UK will never be repeated. Home ownership is now in decline.47 House prices have torn away from wages to such an extent that most young people cannot afford to buy a home. Home ownership amongst 25–34-year-olds has fallen from 65% twenty years ago to 27% today.48 Many young people are now accustomed to the fact that they will never own their own homes. On top of the stagnation in wages, the pensions crisis, and the erosion of the nation’s collective wealth, today’s young people missed the 1980–2007 boat entirely, and are now left with the wreckage of an economic model that has enriched their parents — not to mention a dying planet.
Elites’ strategy for dealing with our current crisis is to divide working people in order to protect themselves, squeezing the poor whilst protecting middle and upper earners. But this strategy is coming unstuck. Young people today know that they have little to gain from the continuation of the status quo, even as their parents cling to its remnants in the hope of protecting the value of their assets. But as house prices fall, the pensions crisis escalates, and wages continue to stagnate, even these voters are likely to concede that there might be a better way to run the economy. Impending environmental collapse adds an urgency to all of these issues — if we do not radically transform the way our economy works now, many parts of the planet will rapidly become uninhabitable. The only way to avert climate catastrophe is to organise the kind of mass state intervention in the real economy that would be unthinkable under the conditions of finance-led growth.
Today, many people look into their futures and see only stagnation and decline. Existence under finance-led growth — working longer hours for less income and spending an ever-greater portion of this income trying to survive, all whilst facing the looming threat of climate apocalypse — can no longer live up to the promise of the good life. Some are acute enough to see that their lives — and those of their children and grandchildren — depend upon radical political and economic change. As the coalition of people that stands to benefit from finance-led growth shrinks, politics will become ever more polarised between those who want to see things continue as they are, and those with an interest in a radical break with the past.
The Coming Crisis

The near-term outlook for the British economy is not good. Consumers are up to their eyeballs in debt. They cannot be encouraged to take out any more. Wages have now started to rise, but not nearly fast enough to offset a decade of stagnation. Low interest rates have encouraged high levels of borrowing amongst both corporations and households, and in 2018, for the first time in thirty years, households’ outgoings exceeded their incomings.49 The total recorded deficit in household budgets was worth $25bn — just over 1% of GDP. Without substantial above-inflation increases in wages across the income spectrum, these trends are not sustainable.
The wealth effect associated with house prices, which has allowed property-owners to borrow more on the back of their rising wealth, also looks set to go into reverse. London house prices fell for the first time since the financial crisis in 2017.50 And where London house prices go, the rest of the UK follows — house prices across the country fell by 0.1% at the end of 2018.51 With consumption spending driving almost all economic growth in the post-crisis period, a decline could precipitate a turn in the business cycle. Whilst this is unlikely to cause a financial crisis, it will undoubtedly have an impact on growth and employment.
Meanwhile, business investment continues to be woefully low.52 Falling investment implies firms aren’t particularly optimistic about the future: they don’t anticipate that there will be much future demand for their products. Rather than investing their profits in fixed capital, many profitable corporations have begun to invest in financial markets once again. But absent large future increases in economic growth — unlikely in the context of low domestic and global demand — these investments are unlikely to pay off. Meanwhile, the corporate debt burden continues to mount, and corporate insolvencies are now the highest they have been in five years.53
The UK is not alone in this gloomy near-term economic outlook. There are gathering storm clouds in the global economy too.54 At the global level, investment growth (gross fixed capital formation) has fallen from 5.7% in 2005 to just 1.6% today.55 In the ten years since the crisis, productivity growth (output per hour worked) across the global North has been markedly slower than it the ten years preceding it. These low levels of productivity are an almost existential problem for global capitalism. If productivity ceases to rise, it is hard to see how it can continue to generate the kinds of profits to which the owners of capital have become accustomed. The financialisation fix has attempted to avoid this problem by reducing the share of national income accruing to workers and extracting profits from the future through debt, but this model no longer seems sustainable.
Partly as a result of these problems, competitive capitalism is rapidly being transformed into the kind of monopoly capitalism envisaged by Lenin over a century ago. Rather than investing themselves, today’s big tech monopolies are growing by merging with or acquiring other firms, increasing their power. They are using this monopoly control to acquire rents, overcharging for some services and failing to pay workers in line with their productivity. Rent extraction and wage suppression amongst some of the largest firms in the global economy accelerate the problems associated with finance-led growth that have been outlined in this book. Many of these corporations are also using transfer pricing and other tactics to avoid paying tax, and some have become so powerful that they are able to escape most attempts to regulate them. These corporations control one of the modern economy’s most valuable resources — data — and they are monopolising this to maximise their profits, rather than using it for innovation or the public good.
With the fall of finance-led growth and the rise of the global monopolies constraining investment and productivity in the global North, China has become the engine of global growth since the recession. The government’s stimulus programme was the biggest Keynesian experiment since the New Deal, and it worked. Contrary to popular belief, for the last decade at least, China’s growth has not been based on exports, but on government spending, the spending of state-owned enterprises, and the lending of state-owned banks. The achievements of this coordinated stimulus programme have been immense. But whilst China has shown that the limits to state investment programmes are much looser than we thought, there are still limits. Today, there is evidence that the multiplier effect of government spending is falling — the Chinese stimulus is becoming less and less effective.56
Slowing growth around the world is even more worrying because of the increases in global debt seen since the crash. Total global debt (including household, non-financial corporations’, and government debt) has risen from $97trn in 2007 to $244trn in the third quarter of 2018 — more than three times the size of the global economy.57 This comes on the back of an increase in corporate debt, which has reached 92% of global GDP. In this context, the tightening of global monetary policy — interest rates and quantitative easing — is of particular concern. Currently, interest rates are near record lows and the global financial system is flooded with trillions of dollars provided by central banks through QE. On the one hand, this has reduced borrowing costs for most governments across the global North — with fewer government bonds to go around, investors are willing to accept lower interest rates for holding government debt. On the other hand, it has pushed investors into riskier assets that provide higher returns, particularly US stocks and corporate bonds (debt). This has increased equity prices and US equity markets recently experienced what has been called the “longest bull run” in history.58
For these rising asset prices to be sustainable, investors have to believe that the corporations they are investing in will be profitable over the long term — unlikely for the average company given the investment and productivity trends outlined above. The implication is that stock markets are overvalued, and three factors suggest that investors know it. Firstly, stock markets are highly volatile — a tell-tale sign of a bubble.59 The second warning sign is what is called the “yield curve” — which shows the interest rates investors will receive on the same government bonds with different maturity dates. Longer-term bonds are supposed to have higher interest rates, because lending for a long time is riskier than for a short time, so investors need to be compensated with higher returns. But the yield curve has now inverted in the US, meaning that short-term yields are higher than long-term yields, indicating that investors are nervous about the future.60 Finally, the Buffett indicator — the market capitalisation to GDP ratio, or how big the stock markets are relative to the “real” economy — suggests that stock markets are overvalued. A market capitalisation to GDP ratio of more than 100% has preceded most recent recessions. Today, it stands at above 140% — higher than before the financial crisis and dotcom bubble.61
It is unclear what will happen when the QE taps are turned off. If central banks start to sell the government bonds they have purchased over the last several years, there is no telling what would be the impact on asset values. And it is equally unclear what the central banks would do with the capital they have accrued from these asset sales. Some central banks — notably Japan’s — may never reduce their balance sheets to pre-crisis levels. When monetary policy does tighten — when (or if) QE is reversed and interest rates start to rise — many debtors will find themselves facing much higher interest rates.
Debt has risen particularly quickly in China, amongst corporations in the US, households in Canada, Australia and the Nordic countries, and states in parts of the Eurozone and the global South. China’s private debt is now nearly 270% of its GDP.62 Its financial system is also highly fragile. Chinese state-owned banks are exposed to a large stock of bad debt, and much of the riskiest debt is concentrated in the shadow banking system — which is worth around 70% of its GDP.63 Two caveats are needed. Most of China’s banks and its largest businesses are state owned, meaning that the state will be able to step in to bail out any struggling lenders or borrowers, though it will have much less capacity to do so today than before the stimulus programme, as state debt levels are now quite high. China’s financial system is also relatively insulated from the rest of the world, so a shock to Chinese banks is unlikely to cascade through the international financial system in the same way as a shock to US banks would. However, the UK is highly exposed to China via the Hong Kong Shanghai Banking Corporation (HSBC).
Debt to US non-financial corporations is now 73% of GDP — higher than before most recent financial crises.64 Low interest rates have pushed investors into US corporate bonds, and companies have found themselves able to access easy credit. Some have argued that this is what explains the productivity puzzle — weak, unproductive firms that may have failed in normal times have been able to remain in business by loading up on cheap debt.65 But in the US at least, firms haven’t been using this debt for productive investment, but to boost share prices, whether by buying back their own shares, increasing dividend payouts, or merging with or acquiring other firms.66 They have been helped along by Trump’s tax cuts, which have boosted profits. When monetary policy tightens, the more indebted corporations with lower credit ratings will find it much harder to access credit, and many may become insolvent.
Australia and Canada are experiencing the same conditions seen in the US and the UK before the crisis: rising household debt, a housing boom, and increasing current account deficits. Rising property prices, driven by mortgage lending, are attracting capital inflows from the rest of the world and exacerbating financial instability.67 Much of this debt is being securitised in the same way as Anglo-American mortgage debt was before the last crisis, though on a smaller scale. Household debt in the Nordic countries is also significant, although many of these countries also have current account surpluses, meaning the debt is mainly owed domestically and the adjustment process should be easier.
Emerging economies in the global South have borrowed cheaply on international markets and will be severely affected by monetary tightening. The US central bank – the Federal Reserve – raised interest rates in 2017, a decision that was already affecting countries like Turkey and Argentina in that year. Many of these countries have borrowed money denominated in foreign currencies, meaning that they are vulnerable to capital flight. If investors respond to rising interest rates by putting their money back into the global North, the result could be a series of sovereign debt crises not seen in the global economy for twenty years.
In this context, the continued fragility of international financial regulation is a significant concern. The Basel Accords that have emerged since the crisis have been just as flawed as their predecessors. Whilst some positive steps have been made, Basel III has been described as a “necessary but not sufficient” improvement in regulation.68 Individual countries have also attempted to expand their own macroprudential regimes, but this has gone further in parts of the global North than emerging economies where risk is concentrated. Risk has therefore been pushed into shadow banking systems in emerging markets — which the Governor of the Bank of England, Mark Carney, recently cited as the biggest future threat to global financial stability.
It is hard to see how much of this debt will be repaid. Consumers in the global North, who have driven global growth for much of the last eighty years, are suffering from low wages, rising living costs, and increasing inequality. Productivity is stagnant in most corporations and in the financial sector, making the debt burden even harder to sustain. The global monopolies that have managed to sustain their profits through this period of turmoil are slowly eating away at the source of their own success by failing to channel their profits into productive investment. Most of the regions and sectors of the British and American economies are suffering from insufficient demand and low profits, whilst a few centres of accumulation overheat, creating instability and constraining growth elsewhere.
When the global debt bubble does eventually burst, it is unclear where future global growth will come from. The pre-crisis condition of debt-fuelled asset price inflation in many of these economies is now over, preventing the US and the UK from soaking up imports from the rest of the world. Absent such demand, the Chinese economy will struggle to revert to the model of export-led growth. Government debt, which will rise still further in the event of a crisis, is unlikely to continue to fill the hole. China’s emerging consumer class is not yet big or rich enough to replace the US consumers’ role in sustaining global growth. A long slowdown in China will have an impact on the growing economies of south east Asia and Australasia, as well as Germany, which rely on exporting to the giant for much of their income. Over the long term, it is highly unlikely that enough jobs will be created in the global South to allow these states to “catch up” with the global North. Instead, international monopolies centred in the global North will accumulate ever larger pools of capital. What Marx termed the “declining organic composition of capital” — fewer workers being used in the production process — may ultimately prove the system’s downfall.
But we may never reach this point. As the global economy stumbles from one crisis to the next, the environment that sustains human life is collapsing around us. Climate change is accelerating at such a rate that, in order to avoid planetary catastrophe, the world must reduce carbon emissions by at least 45% by 2030. The challenge that lies before us is immense.69 If emissions continue to rise at current rates, the planet will warm by at least three degrees Celsius by 2030 — well above the 1.5 degrees that the IPCC has designated as “safe”. Twenty of the warmest years ever recorded have occurred in the last twenty-two years. There has been a dramatic increase in the likelihood and severity of extreme weather events over this same time period. If these trends are not arrested, catastrophe will ensue. The planet will be transformed into a “hothouse Earth”, with environmental collapse rendering many parts of the planet completely unrecognisable. The loss of life and the political chaos this would cause would be apocalyptic.
But it is not just carbon emissions that we have to fear. We are now living in the geological era during which human action is the most significant factor influencing the environment. All the Earth’s environmental systems — from the water system, to the atmosphere, to the biosphere — are highly interdependent, meaning that change in one part of the environment inevitably has impacts elsewhere. In extreme scenarios, a shock to one part of the system can cascade throughout all our environmental systems, leading to unpredictable shocks. As the human impact on the environment has accelerated, all the Earth’s environmental systems have been affected.
As discussed above, we are currently living through a mass extinction, with almost sixty thousand species lost each year. Insecticide use has meant that insects are dying at an unprecedented rate, threatening birds and other animal life up the food chain. Ocean acidity — the concentration of CO2 in the world’s oceans — has risen over 25% over the last one hundred and fifty years. At some point, a tipping point could occur when the oceans cannot absorb any more CO2 and the amount being released into the atmosphere skyrockets. The nitrogen cycle has been disrupted due to its overuse in modern agriculture; when these chemicals run off into the water supply, they increase the concentration of algae which can deplete oxygen in the water system, harming marine life. Our soils are being degraded at 10–40 times the rate that it is being replaced, severely curtailing potential agricultural production.
It is not a coincidence that these changes have all accelerated as capitalism has developed. According to the logic of our economic model, nothing is too precious to be sacrificed on the altar of profit — not even the planet itself. Clearly, the massive scale of the challenge means that it cannot be dealt with through small policy tweaks. Systemic breakdown can only be undone through systemic change — a transformation in the very logic of our political and economic systems. Only a mass mobilisation of society’s resources, along the lines of the Green New Deal recently advocated by Alexandria Ocasio-Cortez in the US, will be enough to avert climate catastrophe. And this will require an increase in state spending directed into greening production, promoting research and development in green technology, and decarbonising energy and transport infrastructure, which would be unthinkable under the political economy of finance-led growth. The fate of our planet will never be ascribed the same importance as the fate of our banks until we change who is in charge, and to whom they are accountable. It is no exaggeration to say that today we must choose between protecting free-market capitalism and safeguarding the future of the humanity.
Marx predicted that capitalism would eventually run out of space into which it could expand. This theory has been invoked many times before to predict the demise of the free-market system, and a new fix has always been discovered. The most recent fix was to allow capitalism to expand not just spatially, but temporally — financialisation allowed for profits to be extracted from the future through debt, ultimately leading to the financial crisis, but not before sustaining several decades of growth. It would be unwise to assume that such a fix will not be found again. But even if it is, without a massive decarbonisation programme — which would require coordinated state investment, tax changes, and regulatory changes of the kind unthinkable under finance-led growth — capitalism, and indeed human civilisation, may end anyway within our lifetimes. It is up to us to save ourselves.

CHAPTER SEVEN THE WAY FORWARD

You cannot carry out fundamental change without a certain amount of madness. In this case, it comes from nonconformity, the courage to turn your back on the old formulas, the courage to invent the future. — Thomas Sankara

In the immediate aftermath of the financial crisis, the global elite was shaken to its core. Some — though not nearly as many as you might think — had lost fortunes, others jobs, and still more their faith in the strength of capitalism. The commentariat began questioning the assumption they had taken for granted for the previous twenty years: that history was over, and that capitalism was the only man left standing. But it wasn’t long before these breathless commentaries came to an end. They were replaced by equally breathless opinion pieces about capitalism’s miraculous ability to survive, and even adapt, through crises that would break a lesser economic system.
A decade later, few are as sanguine about the fate of the free-market system. The meagre global recovery has been based on an unprecedented Chinese state stimulus programme and extremely loose monetary policy in the world’s major economies, creating instability in equity markets and inflating a new private debt bubble. Productivity — the great engine of improvement under capitalism — is stagnant. Outside of the global North, many of those countries that have been told for decades they are just one policy change away from catching up have experienced similar levels of stagnation, and now face the threat of capital flight as monetary policy tightens. In the meantime, global monopolies — particularly tech companies — have hoarded the returns from what little growth there has been in the post-crisis period, keeping their ill-gotten gains in tax havens and using their unparalleled economic power to sway the nation states that might seek to regulate them.
The rebirth of far-right populism on a level not seen since the 1930s is taking place in this context. Nationalists use dog-whistle racism to link voters’ experience of hardship and deteriorating living standards with an ill-defined “other” that can shoulder the blame. The only movements that have managed to absorb the discontent that would ordinarily fuel the far right are those that locate the blame for falling living standards where it belongs — with elites. Few traditional social democratic parties have lived up to the task, clinging instead to old narratives about a “third way” for workers between freedom and exploitation. As a result, they have been Pasokified — consigned to electoral insignificance just like the Greek social democratic party Pasok — leaving space for the far-right to take up the mantle of economic agitation.
There have, however, been some notable exceptions. Eleven years on from the financial crisis, it is no exaggeration to say that in the most heavily financialised economies — the US and the UK — the left is stronger than it has been in forty years. Partly due to the severity of the crisis in these economies, and partly due to the nature of their majoritarian electoral systems, left social movements in Anglo-America have aligned with elements within the traditional parties to disrupt politics.
This development has shocked the commentariat — perhaps even more so than the crisis itself. The Economist has written in fevered tones about the rise of “millennial socialism”; an article in the Financial Times attributed the emergence of this new phenomenon to quantitative easing’s role in driving up house prices. After decades of deriding socialism as a regressive, totalitarian ideology unfit for the liberal, networked age, defenders of the status quo have found themselves mute in response to the new wave of democratic socialists who see their project as part of the long struggle for human freedom. Why, they ask, should young people be forced to work longer hours for lower wages and fewer benefits without even the respite of knowing that they will be better off than their parents? Why should they be forced to spend the rest of their lives working as debt peons to repay the money they have borrowed simply to survive? Why, in other words, should young people support capitalism when they never expect to own any capital?
This last question in particular has the establishment worried. With property-owning democracies decaying into property-owning oligarchies all around the global North, those in positions of power are aware that the political economic settlement upon which financial capitalism is based is crumbling. But they have no answers. Restorers of the liberal order like Macron in France have burst into the spotlight promising the world, only to fail to deliver a policy agenda that addresses people’s concerns.
The death of finance-led growth is already providing plentiful opportunities for those who seek to build a new world. Those on the right will use the backlash against capitalism to turn working people against one another, in a bid to close off wealthy corners of capital accumulation. They will be encouraged by elites who would rather see the end of the world than the end of capitalism. For these people, capitalism really does represent the end of history — and from now on we can hope for no better than stagnation and decline.
But there is another way. If, as the neoliberals did during the 1970s, we can grab hold of this moment and use it to rebalance power relations and entrench a new set of institutions, we can pave the way for a new economic order. Such a project must take place on three interrelated plans: those of narrative, electoral politics, and social forces.
We must develop a populist narrative, which shows that working people are being made worse off by an exploitative and extractive capitalist model that sees wealth and power concentrated in the hands of a tiny elite, and that things are only going to get worse under the status quo. We must build an electoral coalition, supported by a strong and diverse social movement, that will allow working people to take control of the apparatus of the state. At the same time, we must transform the balance of power in society, building up the labour movement and radical social movements in order to challenge the power of bosses, landlords, and lenders. And we must use this power to institutionalise a new political economic settlement — one that operates in the interests of those who live off work, rather than those who live off wealth.
The slow decay of finance-led growth provides us with clues as to how it might be surpassed. Rising debt levels, falling wages and productivity, and impending environmental collapse all present socialists with strategic opportunities for intervention. And the best way to tackle all these issues is to strike at the heart of the system that has created them, by taking on finance capital itself. In this chapter, I will argue for a series of measures to “socialise finance” — to place our financial system under collective ownership and democratic control. This means properly regulating the banking system, building new public financial institutions to replace the private system of credit creation, and creating a People’s Asset Manager to steadily socialise ownership across the economy. Democratising our economic institutions will ensure that finance comes to work in the interests of society as a whole, rather than just a privileged elite. Socialising finance will steadily erode the distinction between owners and workers and, before long, will allow us to transcend capitalism altogether. If history has a sense of humour, then the death of capitalism will begin where it was born — in the United Kingdom.
Capital

In 2013, 146 years after Marx published his work of the same name, Thomas Piketty published Capital in the Twenty-First Century.1 It was an instant hit, though few made it past the introduction. In Capital, Piketty argued that the central problem of our time was the tendency for the returns to wealth to outstrip economic growth. Because wealth is highly unequally distributed in capitalist systems, this tendency leads to increasing inequality. The only respite was the “golden age” of capitalism during the post-war period, when the combination of the destruction of the war and the politics of the post-war consensus created a significant dent in wealth inequality. Since the 1970s, wealth inequality has risen sharply and whilst it has not yet reached pre-war levels, Piketty worries that on current trends it will not be long before it does. Effectively, Piketty has found empirical evidence of the problem identified by Marx over 150 years ago — under capitalism, profits are derived from the difference between the value created by the worker and what she is paid. Most of the time, this means that there is an inherent tendency within capitalist systems for the returns to capital to outstrip the returns to labour. These trends are accelerated when profits and income are invested in financial markets, or transferred to the rentier class, as is characteristic of finance-led growth.
Piketty doesn’t have much time for Marx. In fact, his work is highly empirical, with little reference to theory — mainstream or otherwise. Whilst this may not impoverish his analysis, it certainly does his conclusions. He argues that the rational response to these trends is to increase taxes on capital. Piketty’s wealth tax would provide the revenues necessary for the state to provide for either full employment or some form of expanded welfare state.
But Marx did not just put forward an economic framework to understand capitalism; he provided us with a theory of political economy in which economic outcomes are shaped by the balance of power between different social forces, and the struggles that take place between them. The wealthiest in capitalist societies are not just those with the money, but those with the power too. Even talking of the wealthy submitting to anything makes no sense unless we are speaking of a state that is run in the interests of workers rather than owners — why would a state captured by big business and the City of London implement policies against the interests of its core constituents? Politicians do not have the incentive — let alone the ability — to implement a global wealth tax. In fact, establishment politicians have no incentive to deal with the current crisis at all, and this is what is generating the peculiar economic and political conditions that prevail today.
Piketty’s wealth tax is a prime example of “solutionism”: a proposal intended to solve all of the world’s problems through tweaks to the current institutional architecture. He pays little attention to power, to politics, or any other drivers of change. The same can be said for a lot of other radical ideas that have recently become popular, like modern monetary theory, land value taxation, or universal basic income. These can all be understood as a kind of technocratic utopianism — they rely on the assumption that society can be transformed from above and that making one or two radical policy changes will completely transform the economy. Many of these policies are not incorrect or bad, but their adherents often prescribe them as the solution to all the world’s problems, without considering how we got to where we are in the first place. Policy prescriptions — from wealth taxes and land value taxes, to financial reform and housing reform — have to be situated within their political economic context. It is meaningless to speak of “policy” without speaking of power.
Neoliberal governments have no interest in funda- mental economic reform as their primary constituency is the wealthy elite. The coalition that supports finance-led growth is based on asset ownership. At the top end, it is dominated by those who live off wealth — those who own so much that they are able to generate a large return from investing or renting out their existing assets. These people would never abide any increase in wealth taxation or meaningful financial reform. For fear of upsetting the balance of power between labour and capital, and undermining the idea that governments are beholden to their bondholders, they could not allow any increase in state spending substantial enough to end the crisis. These people have benefitted substantially from the system of financialised capitalism brought about from the 1980s, and they will not see it end without a fight.
Whilst they represent the most powerful group within the coalition, they are not the largest in number. As described in Chapter Three, the only way to render financialised growth sustainable over the long term was to give middle earners a stake in its continuation. This was achieved through the combination of privatisation — including the privatisation of pensions and social housing — and bank deregulation, which led to an increase in mortgage lending. Maintaining this coalition required combining wage suppression with asset price inflation, the latter of which would provide the material basis for the property-owning classes continued support of finance-led growth. But today, home ownership is declining, house prices are falling, and pension funds around the world are in crisis — in other words, the bargain is breaking down. It is being held together by quantitative easing, which continues to drive unsustainable levels of asset price inflation, but which has also inflated bubbles in a series of asset markets that may soon burst. This is what a political contradiction looks like — an irreconcilable division between two constituencies, the support of both of which is required to maintain the status quo.
Implementing a wealth tax would not only alienate the most powerful element of this constituency — wealthy elites — it would also divide the electoral constituency that supports finance-led growth by politicising the ownership of capital. Taxing wealth exposes the most fundamental divide in capitalist societies: that between those who live off work and those who live off wealth. The politics of financialisation rests on obscuring this divide and, in doing so, convincing a section of working people to support a system that benefits the wealthy. Greater taxation of wealth would reveal an essential antagonism in the economy and so raise the consciousness of working people, which is exactly why a neoliberal government would never implement it.
Democratic Socialism

There can be no going back to pre-crash politics, because there can be no going back to before the bursting of the housing bubble. It will never be possible to create that amount of new debt — and therefore new money — again. And without rising debt and rising asset prices, the political economy of finance-led growth begins to break down. With their living standards stagnant, people have started to question the idea that their interests are best served by the status quo. And with the environment collapsing, young people are rebelling against an economic system that would sacrifice their futures for the sake of immediate profit.
We must chart a route out of this political–economic quagmire by building an electoral coalition that unites working people against elites: those who live of work, against those who live off wealth. Any attempt to rebalance power and wealth away from the few towards the many will not be sustainable if it relies solely on redistribution. The fundamental economic battle lines are drawn on ownership. When Thatcher came to power, she set about privatising the UK’s collectively owned wealth — selling off the family silver in order to provide short-term gains to middle earners that would provide the electoral support needed to stabilise her coalition. She also removed restrictions on capital mobility, so that any attempt to reverse this model would be met with capital flight. Thatcher did cut taxes for the rich and oversaw a decline in the tax burden as a percentage of GDP, but these economic changes were facilitated by far more far-reaching policies that transformed the balance of political and economic power. The big debates about tax and spend only came later, with New Labour’s attempt to render an unstable and unequal system slightly fairer.
We must focus on shifting the balance of power in society away from capital and towards labour by expanding state, community and worker ownership. This is not simply a moral or political statement: it is a statement of necessity. Without a plan to socialise wealth, the economic contradictions of the current model — from inequality to climate change — will only continue to mount. Piketty showed that the tendency of capitalism is for returns to capital to increase faster than returns to labour. Financialised capitalism accelerated this trend for a time by inflating giant debt-fuelled speculative bubble that drained the planet of resources, only to burst in a fit of inefficiency and waste. As long as wealth is privately owned and unequally distributed, these patterns will continue to afflict our economy. What will emerge is a financialised world characterised by bubbles, rising inequality and ever-increasing levels of debt, accompanied by environmental degradation in the pursuit of profit. Such a model cannot remain stable for very long.
Some see these issues as examples of “market failures”, which can be solved through state intervention at the margins of the economy.4 For these people, changing ownership structures isn’t the answer, instead, corporations should be regulated and taxed to promote the social and environmental good. Such an outlook rests on the idea that environmental degradation, rising monopoly power, and increasing inequality are not inherent to capitalist political economy, and so can be fixed by enlightened governments operating in the interests of their citizens. But capitalist states have failed to solve many of the world’s major problems over the last forty years. Carbon pricing has not halted climate change. Competition regulation has not stopped the emergence of international monopolies. And whilst redistribution has certainly played some role in muting inequality, it has failed to prevent a situation in which the wealthiest twenty-six people have the same wealth as the poorest half of the global population, or roughly four billion people.
In truth, there is no such thing as a “market failure”, because there is no such thing as a pure market. Any market transaction — from a consumer buying an apple, to a business investing in a new factory — takes place in the context of an institutional architecture supervised by the state. States create markets and are therefore partly responsible for the problems that markets create. Modern capitalism is a joint venture between the neoliberal market and the neoliberal state — and so-called “market failures” are therefore much better understood as failures of capitalism.
Such market failures can’t be fixed from within a capitalist system. The only interventions that the state could make that might meaningfully address climate change, inequality or financial instability would threaten the power relations that underpin finance-led growth. If firms do not take every opportunity to maximise their profits today — whether by evading tax, undermining regulation or driving down workers’ pay — they may not exist tomorrow. These dynamics might not be so obvious when there is plenty to go around, but during times of crisis and scarcity, the Darwinian nature of capitalist competition becomes obvious. When the options are compete or die, nothing is too valuable to be sacrificed on the altar of private profit, not even the planet. Firms will undermine regulations, lobby governments for special treatment, or leave one jurisdiction for another, setting off a global race to the bottom on wages, tax, and regulation, and destroying the planet in the process.
Today, in the absence of the pre-2008 debt bubble, economic and political transactions have become a zero-sum game. Inequality may have risen during the 1980s, but the majority of people were also getting better off too — mainly through the expansion of access to credit. This debt bubble was never sustainable, but it served to obscure the tendency of capitalism towards stagnation — for a while. Today, we live in a world of low growth, low wages, and low productivity — all of which are impeding profitability amongst the majority of firms. Those that have remained profitable have been those that have carved out the kind of international monopoly positions that create both economic and political instability over the longer term. Meanwhile, landlords and lenders extract ever greater amounts from workers and businesses, leaving them with even less to spend and invest. In this context, as capitalists compete to increase their share of a pool of resources that is growing at slower rates every year, the rest of society experiences stagnation and decline. Even though we know we need to halt climate change, we will continue to avoid this obvious truth because fighting climate change cannot create the kind of windfall profits to which investors have become accustomed under finance-led growth.
Private shareholders will always place profit maximisation over any other social good. Even if, as individuals, they would like to promote ethical behaviour on the part of corporations, the large institutional investors who monopolise most of the world’s capital are forced by the nature of competition to invest in order to maximise their returns. Only as a collective do we have the right incentives to ensure that the drive towards profitability is tempered with a concern for the environment and society.
The response to this from those on the right — and some on the left — is that even in a socialist society, the state could not be relied upon to pursue the common good. Public shareholders and workers will use their control over corporations to pursue what they consider to be their own interests: civil servants will use their economic control to enrich themselves, managers will use their political power to build corporate empires, and politicians will begin to see corporations as an extension of the state itself. Rather than being held accountable to shareholders, managers would be held accountable to politicians and civil servants, who would demand that state-owned enterprises find jobs for their friends, invest in their constituencies, and make money for the state (and perhaps even the politicians themselves). Politicians’ parochialism would mean that wider environmental and social considerations barely get a look in. Corporate governance would remain a question of top-down, managerial control over workers, which would be just as alienating as work in a private enterprise, even if it is better paid and more secure. Meanwhile, any attempt to challenge the model would be met with staunch resistance from those who benefit from it. The familiar refrain is that socialism threatens to revive the economic problems of the 1970s: union bosses and politicians using their control over inefficient corporations to hold the rest of society to ransom.
Whilst this portrayal of 1970s Britain is something of a pastiche, it does have some truth to it. State ownership often did little to improve working conditions, corporate governance, or environmental objectives. Some of the largest state-owned enterprises in the world are also the most corrupt, extractive, and exploitative. Thankfully, the choice is not between corporations governed in the interests of shareholders or politicians. This is where the “democratic” in democratic socialism comes in — whether a company is nationalised, mutualised, or subject to any other form of collective ownership, workers must either be in charge of making decisions themselves, or rigorously holding other decision-makers to account.
The UK Labour Party has recently proposed a series of policies aimed at democratising ownership in the British economy. These range from nationalisation, to worker ownership funds, to boosting support for the co-operative sector. Key parts of the UK’s infrastructure — from transport to utilities — will be nationalised under the next Labour government, based on democratic models of corporate governance. Worker ownership funds will be established, which would see a portion of large firms’ shares being transferred to workers, linked to their profitability. Financial support for the mutual and co-operative sector will be increased, and public procurement changed to ensure democratically-owned firms receive preferential treatment. And a National Investment Bank will be created to direct finance into potentially productive parts of the economy that have been chronically starved of capital.
But there is much more work to do. As it stands, the Labour Party’s manifesto reads like a return to the post-war consensus. It seems radical from the perspective of twenty-first-century financialised capitalism, but it is really a return to social democracy. We cannot afford to be so defensive today. We must fight for something much more radical. We must fight for democratic socialism — not only because it is a better system, but because the capitalist model is running out of road. If we fail to replace it, there is no telling what destruction its collapse might bring.
Socialising Finance

The potential of democratic socialism is huge. The question is, how do we get from here to there? Why would a state beholden to the interests of asset owners socialise capital in a way that would lead to capital losses for its key constituency? Even if a new government responsive to a new group was elected, why should civil servants, public service workers, or local government officials respond to the interests of working people when their economic interests and ideological outlook are so aligned with the status quo? And even if it was possible to deal with these problems, wouldn’t a new government run the economy in its own interests, rather than those of society as a whole?
These questions are all about power — and this is what the transition to democratic socialism comes down to. Whilst utopianism can help us sketch a vision of the future, it is meaningless without a coherent analysis of the power relations that sustain the existing system. Absent such a power analysis, the depiction of democratic socialism can verge on the kind of solutionism that many liberals fall prey to. The question we must ask ourselves today is how can a left movement build a politics to underpin democratic socialist economics?
The theory of social change laid out in this book links broad, structural changes in the nature of the economy with human agency. All capitalist economic models are subject to contradictions, which eventually lead to crises. During these moments of crisis, the institutions that support the normal functioning of the system break down and society enters an extended period of systems collapse. These moments are when insurgent movements — whether on the left or right — can shift the balance of social, economic and political power and build new institutions that reinforce the influence of their group. Today, the extended crisis of Anglo-American capitalism presents an opportunity to rebalance power away from capital and towards labour.
An analysis of how similar changes have occurred in the past should inform how we seize this moment. We must learn from the transition to finance-led growth that took place in the 1980s. Learning from Thatcherism means developing a strategy for political contestation at three levels: the level of narrative, of electoral politics, and of social forces.
After decades of stagnation caused by a financial crisis, the financial elite centred in the City of London is the natural villain in any left populist narrative. Increasing our collective wealth and reducing private debt will provide an immediate increase in living standards for a large potential electoral constituency. And, by steadily tightening regulation over existing financial firms and setting up socialist alternatives, a socialist government would be simultaneously weakening the power structures that undergird the existing system of finance-led growth, whilst also helping to build up the new economy in its place. Socialising finance represents an inversion of the Thatcherite project: socialists must take on the banks the way Thatcher took on the unions.
This threefold strategy must be effected from both the bottom-up, and the top-down. The social movements that have emerged around the left in recent years, combined with the labour movement, are the core political base for socialist transformation today — much as financial elites were the core base for the creation of finance-led growth. The inevitable diversity of such movements does make building a coordinated platform difficult. It is always going to be much harder for large numbers of people to come together to demand social change than for it is for elites to work together behind the scenes. But this is also the source of these movements’ power. There are millions of activists across the UK able to organise to resist individual instances of exploitation or oppression, to campaign, and to protest. From the Occupy protests of 2011/12, to Extinction Rebellion, to the Deliveroo strikes, left social movements have, since the crisis, demonstrated their unique ability to win battles, shape wider narratives, and effect social change.
Working together, social movements of all kinds can come to form what Nick Srnicek and Alex Williams called an “ecology of organisations” that can work within and alongside political parties to challenge the narratives, electoral politics, and social forces that support finance-led growth.5 These movements can develop and disseminate a narrative that pits working people against extractive financial elites by centring this language in their campaigning at both the grassroots level and in the media. They can support the development of a viable electoral project by engaging with political parties — supporting these parties to mobilise their key constituencies and challenging them to remain accountable to their base. But perhaps the most important role for social movements under finance-led growth is to mobilise directly to disrupt the institutions and power relations that reinforce the current system — both to weaken these structures, and to build a collective consciousness that will serve to strengthen the movements themselves. Collective action in the workplace, for example, both weakens bosses and serves to build the consciousness of those engaging in the collective action.
But for this kind of bottom-up political mobilisation to be effective, it must be based on a coherent understanding of the power relations that underpin finance-led growth. Organising in the workplace will not be enough; instead, these traditional tactics must be combined with new strategies that politicise asset ownership and expose extractive rentierism. Momentum campaigners in the UK, for example, recently organised a day of collective action targeting financial institutions that invest in fossil fuels, taking the fight against climate change straight to those who control our collective resources. Renters unions around the world are organising to protect tenants against exploitative landlords, as well as fighting for policies to protect renters throughout society. In Ireland, trade unions, political parties, and community movements launched a mass campaign to resist water privatisation and won.6 Student movements all over the global North have resisted attempts to commodify higher education through the imposition of fees. Whilst not all of these campaigns have succeeded in achieving their aims, they have been integral in the building the movements that have been at the forefront of the socialist resurgence seen in many parts of the global North over the last several years.
This ecology of organisations will also come to play a critical role within established political parties by occupying an insider/outsider stance that allows them to hold these parties to account. Movements must retain strong links with key institutions and individuals, without providing unerring support, and while retaining their ability to criticise. The debates about the possibility of parliamentary socialism that have raged for the last half century hinge on whether it is possible for a socialist government to maintain its radical stance whilst in government. No matter what the individual characters of the Cabinet and leadership, it is unquestionable that that level of proximity to power changes the material incentives such individuals face. The inherent conservativism of the British state would place huge obstacles in the way of any radical programme of economic change. The “deep state” may attempt to prevent it altogether. Meanwhile, the temptation to alter the platform to appeal to the so-called “median voter” will remain significant. A strong ecology of organisations can provide the political pressure needed to ensure that parties retain their insurgent character when in government. Social movements that can operate within and against political parties are needed to build political parties that can operate within and against the state.
Socialist parties undergirded by strong social movements can also affect change from the top-down in ways that reinforce the strength of their base. These parties must develop a set of policies that will allow them simultaneously to challenge the power of private finance and promote public alternatives in its place. First, private finance must be properly constrained. The opportunities to do so are currently greater than ever, given the changing attitude towards financial regulation that has emerged amongst international policymakers since the financial crisis. It will be possible to drastically reduce the power of financial services using regulatory tools that are internationally accepted. Constraining the power of private finance would both reduce financial instability and act as a kind of Ridley Plan for finance capital.
These policies would reduce lending amongst these private institutions, so a public banking system must be constructed as the private system is constrained. The first plank of this public banking system would be public retail banking, which would offer highly competitive retail banking services available for free, to everyone. This system could then be used to enact a national programme of debt reduction, that would allow consumers and small businesses in debt distress to refinance their debt, and in some cases see large chunks of it written off altogether. A National Investment Bank (NIB), which would lend directly to businesses, should also be set up alongside this system.
This public banking system would not be subject to the regulation that governs the private system. Instead, it would be connected to the by then democratised Bank of England, which would be instructed to control the level of lending in the economy by directing these institutions to expand lending during downturns and temper it during upswings. Direct lending from the NIB could also be used in place of central bank bond purchases to boost output when interest rates reach zero and cannot be reduced any further.
But the truly transformative aspect of this plan would be to have the NIB act as the investment arm of a People’s Asset Manager (PAM). The PAM would both manage the assets of a newly created Citizen’s Wealth Fund, expanding public ownership, and invest on behalf of pension and insurance funds, socialising ownership across the whole economy. The CWF could eventually pay out a Universal Basic Dividend that would lock in support for the system by providing people with a tangible benefit from public ownership – much as the capital gains associated with right-to-buy have supported finance-led growth. The relationship would mirror that between today’s investment banks and their in-house asset managers, which allow them to invest in companies to which they lend money. The combination of a NIB and a PAM would ensure that public investment benefits society as a whole, rather than enriching private shareholders.
1. Regulating the Private Banking System

Since the financial crisis, there has been a growing recognition of the need for what is now known as “macroprudential policy” — or regulation intended to curb systemic risk in the financial system.7 Such policies aim to ensure banks do not create too much debt, either relative to the size of the economy, or relative to the amount of capital they hold. It will be important for an incoming socialist government to use these policies to constrain the power of the private banking system, reduce debt levels, and control asset prices.
The overarching regulation should be shaped around a new target for the Bank of England: an asset price inflation target.8 The Bank should use new and existing regulatory tools to monitor domestic asset prices and control the amount of credit in the system to mute the ups and downs of the financial cycle. Knowing that banks are likely to lend too much when times are good, and lend too little when they are bad, the Bank should guide the private sector’s lending behaviour by using dynamic regulatory interventions. For example, if household debt levels started to rise quickly, the Bank of England might issue guidance to private banks that they are only allowed to provide mortgages worth 80% of the value of the home. On its own, this would serve to privilege buyers who purchase homes without a mortgage, so this intervention would have to take place alongside broader reforms to the taxation of income, wealth, and capital flows to limit the distributive impact.
Another set of tools to control risk in the financial system are capital requirements that rise and fall depending on the state of the financial cycle. Depending on domestic regulation, all banks must hold a certain proportion of their lending as highly liquid capital — cash, equity, and some other assets defined by regulators. Higher capital requirements mean banks are able to lend less, limiting their profits — as a result, there has been a continued downward pressure on the quality and quantity of capital that banks are required to hold over the period of finance-led growth. Counter-cyclical capital requirements would give regulators the option of raising the amount of capital banks are expected to hold during the upswing of the financial cycle and reducing it during the downturn. The Bank should limit the definition of regulatory capital to cash or shareholders’ equity, phasing out the inclusion of other assets. This would both strengthen banks individually, reducing the likelihood that any individual bank would fail, and support the Bank of England’s ability to control lending.
Retail and investment banking should be also broken up, meaning that peoples’ deposits would not be exposed to risks taken by banks’ investment banking arms. The UK’s system of universal banking — under which commercial and investment banking are combined in single entities — has not only implicated ordinary peoples’ savings in the speculative activities undertaken by investment banks, it has also led to the emergence of giant uncompetitive monopolies that have gained a huge amount of both political and economic power. The 2012 LIBOR rigging scandal — when banks engaged in fraudulent activities surrounding interest rates — is a good example of the kind of collusion that can be expected from a system dominated by a few large players. The high rates of interest many such banks charge to lend to consumers, and the low interest rates they provide to depositors — often unrelated to the rates at which they are able to borrow from the central bank — are also evidence of oligopolistic behaviour. As of 2017, consumer and investment banking are ringfenced, but not explicitly separated, and a socialist government should completely separate them.
The UK’s shadow banking system also needs to be subject to much tighter regulation. Tentative proposals were made in the US’ Dodd–Frank Wall Street Reform and Consumer Protection Act, which aimed to subject some non-bank financial institutions to most of the regulations that govern the traditional banking system. Non-bank systemically-important financial institutions (SIFIs) would be subject to capital requirements, leverage ratios, liquidity requirements, and transparency measures. A similar approach should be taken in the UK. Any rigid regulation in this area would be evaded by financial institutions, who have historically found ingenious ways to undertake regulatory arbitrage. As such — and this should be a general principle for macroprudential regulation — the rules should be laid out in as broad terms as possible and implemented based on regulators’ and central bankers’ monitoring of risk as it arises and their interpretation of their mandate. As Andy Haldane, the Chief Economist of the Bank of England, argued in a 2012 speech, “complex environments often… call for simple decision rules… because these rules are more robust to ignorance”.9 Such an approach would, however, require regulatory institutions to be subject to continuous democratic and diverse expert scrutiny.
Taxation of the finance system also requires fundamental reform. The bank levy — introduced after the crisis — was a tax on banks’ global balance sheets, designed to rise and fall in order to bring in the same amount of revenue each year. Today, it applies only to banks’ domestic balance sheets and has fallen substantially. It has been combined with a corporation tax surcharge that doesn’t have much of an impact on big banks. The tax should be expanded to cover banks’ and shadow banks’ full international balance sheets.
These measures should be combined with transactions taxes designed to limit activity in financial markets and curb capital flows. Financial transactions taxes (FTT), which are rapidly becoming popular around the world, should be combined with currency transactions taxes (CTT), which are less in vogue. The latter would act as a form of quali- tative capital control, disincentivising capital inflows and outflows. During normal times, the CTT should operate in the same way as the FTT — levied at a low level and applied to all ordinary currency and derivatives transactions. The Bank of England should also have a remit to increase the CTT in the event of rapid capital inflows or outflows, with a view to promoting the stability of the financial system.
The collection of these interventions would limit banks’ profitability, thereby making them highly unpopular amongst key stakeholders. Central banks would therefore need to be insulated from regulatory capture. As argued above, independence for central banks has simply served to isolate decision-making from democratic accountability, leaving central banks beholden to financial interests. Central bank democratisation, discussed below, is therefore a critical enabler to these proposals.
2. Public Retail Banking

Taken together, these proposals would curtail the power and profitability of the finance sector. The leaders of these institutions would not take such interventions lying down — capital could strike or flee. Private commercial banks would be likely to reduce their lending and many investment banks may threaten to leave the country. Whilst many of the activities undertaken by the latter are socially useless, reductions in lending in an economy sustained by credit would have a significant impact. As a result, measures would need to be taken to build a public banking system that could service both consumers and businesses before such regulation was put in place.
One proposal, recently put forward by the UK Labour party, is to set up a network of Post Banks. The idea would be to capitalise a Post Bank, as a subsidiary of the Post Office, and run it as a series of decentralised local and regional banks. These banks would provide standard retail services to consumers — checking accounts, savings, insurance, personal and business loans — and be funded through deposits. But establishing a transformative public banking system requires intervention on a significantly larger scale. Establishing a network of Post Banks is a strong start for a public retail banking system. However, a socialist government should also fully nationalise RBS — rather than decreasing its stake — and turn this into another public retail bank, operating according to the same principles, whilst selling off its investment banking arm, or incorporating this infrastructure into the National Investment Bank. These banks should be capitalised as needed through bond central bank money issuance to support enough lending to absorb the impact of the macroprudential reforms outlined above.
The public retail banking system outlined here should not be subject to the same regulation as the private banking system. Public banks would not be pushed into undertaking ever riskier behaviours based on the imperative to maximise profits — and are in any case subject to much less risk than private banks because their lending is guaranteed by the state. And given the aim of this plan is to limit the size and strength of private capital, it makes sense to provide the public banking system with a competitive advantage that makes it more attractive to most customers. Over the long term, this would serve to shift consumers and businesses organically towards using the new public banking system, whilst also forcing up standards in the private banking system. This would mean that businesses and households were able to access credit more cheaply, fairly, and democratically than in the current system.
The public banking system should be used to direct investment into socially desirable areas. The Bank and its stakeholders should be able to issue guidance to these new public banks on how much they are lending, and to whom. During an upward swing in the financial cycle, lending amongst these public institutions should be limited, other than for the most socially-necessary activities. During a downswing, these institutions should fill any gaps that arise in private credit creation. The relationship would work both ways — with the public banks providing the Bank of England with up-to-date information on the demand for credit, and the latter adjusting its outlook accordingly. Priorities for lending should be determined democratically based on a) the aims of the Green New Deal outlined below, and b) consultation with the stakeholders involved in the Bank’s new democratic architecture.
3. Debt Refinancing

The above set of interventions would not reduce the existing stock of private debt and would affect asset prices. To deal with the debt problem without causing a financial crisis, the public banks should step in to allow consumers and businesses to refinance their existing debt on easy terms, or have it written off altogether. Total interest paid on loans should also be capped as a percentage of the initial value of the loan (e.g. 150% of the principal).
Those with substantial outstanding unsecured debts — debt not backed up by an asset like a house — should have the option of refinancing these debts within the new public banking system. The public banks should buy up the debt from the private banks, imposing a haircut on the private lenders, and then refinance it at much lower — and potentially negative real — interest rates. For those consumers in severe debt distress, or those who have already repaid the principal of the loan, write offs should be considered. The balance between refinancing and writing off the debt should be undertaken in consultation with the Bank of England, based on trends in current consumer and asset prices.
Falling asset prices resulting from the new limits on private lending may threaten the solvency of borrowers who have taken out secured loans. The first and most obvious market this would affect would be housing — depending on the state of the financial cycle at the time, house prices could fall, potentially pushing some borrowers into insolvency. The new public banks should stand ready to refinance consumers’ mortgages, with strict terms and conditions applied. The public bank should pay as little as possible for the outstanding mortgage without prejudicing the solvency of the private institution that owns the mortgage — banks will have to take a hit, but not one large enough to threaten their solvency. Borrowers should repay the public bank the full value of the loan at market interest rates. The option of refinancing should serve to prevent a financial crisis, without obstructing the desired outcome of a steady increase in the affordability of housing.
Over the long term, the aim of the new system would be to reduce the desirability of private home ownership by keeping house prices in line with consumer prices and improving affordability and security of tenure for private and social renters. Housing would cease to be a financial asset and would come to represent a commercial good and a store of value. Such a proposal would have to be combined with a massive programme of house building — primarily for social housing — which should be guided by an industrial strategy aiming to boost employment and output in certain industries in certain parts of the country whilst decarbonising economic growth. Such a strategy could be implemented through the National Investment Bank outlined below. This would also require sweeping reform of regulation governing the housing market to make tenure more secure.
Many British businesses are also highly indebted and may experience similar problems were asset values to fall. The public banks, in coordination with the National Investment Bank, should consider offering the most distressed businesses the option of cheap refinancing. Again, the decisions here should be undertaken based on the size and nature of the business in question, with preference given to small businesses undertaking socially-useful activities in deprived areas.
4. Empowering workers

After this series of interventions, a large amount of the stock of existing private debt will have been transferred to the public sector, with consumers and businesses paying much lower rates of interest. This would serve to limit the power and profits of private finance capital, whilst also providing an immediate boost to living standards. However, more will need to be done in the short term to lift wages and living standards in order to empower working people in place of finance capital and reduce the demand for credit over the long term.
Wages must be increased at the bottom of the income spectrum by rolling out the real living wage across the country and to all ages. Wages per hour worked should also be raised by moving towards a four-day week. The anti-union legislation of the last several decades must be removed, and mandatory collective bargaining introduced. This would have to be accompanied with reforms to the structures of the major unions to make them more democratic, and support for new and smaller unions to scale up. But work is not limited to the workplace. Our economy currently relies on a huge amount of unpaid labour like child-rearing conducted primarily by women. Carers should be given the option of being remunerated for the reproductive labour they undertake or making use of expanded free care services provided by the state.
Tackling inequality also requires root-and-branch reform of the tax and benefits system. Taxation is far too large a subject to address in full here, but promising proposals have recently been put forward by the think tank IPPR to increase wealth taxation, reform corporate taxation, and reduce the income tax burden on lower and middle earners.10 Improvements to the tax system would be facilitated by the system of capital controls outlined above, which should prevent a mass exodus of capital. More, however, will also have to be done to curb avoidance and evasion as outlined below. Cuts to social security must be reversed and the punitive sanctions regime that exists at the heart of Universal Credit should be removed. And finally, the UK should move towards providing a much wider share of public services and utilities free at the point of use. This last aim would be facilitated through the nationalisation of key utilities like transport, energy, and water.
5. A National Investment Bank and a Green New Deal

The combination of higher taxes on corporations and the wealthy, and much greater levels of collective ownership across the economy achieved through the public system of investment outlined below, would provide the revenues necessary to make such a system sustainable over the long-term. Smart investment, aimed at raising incomes, reducing inequality and greening economic growth, would also increase tax revenues as well as achieving a variety of other objectives.
This investment agenda should be undertaken under the mantle of the “Green New Deal”, involving a dramatic increase in state investment to decarbonise the economy. This would involve decarbonising transport, energy, and other infrastructures through nationalisation and a programme of green investment; investment in research and development in green technology; and investment in decarbonising production, at home and abroad. The first plank would require direct state spending, but the second two could be undertaken through a National Investment Bank. The returns from this lending could then be shared equally through the creation of a People’s Asset Manager.
The UK Labour Party has recently put forward a proposal for a National Investment Bank (NIB) that has been designed to “avoid direct competition with conventional banks”. The bank would be capitalised through a £20bn bond issuance, and then issue its own bonds on financial markets backed up by a government guarantee, to bring its balance sheet up to £250bn. The NIB would then devolve funding to a set of Regional Development Banks (RDBs) that could undertake lending on the national bank’s behalf. Rather than directly lending to businesses itself the bank will provide capital to a network of smaller banks, which will then lend on to their customers. In effect, this allows banks to lend to small businesses without the associated risks. The governance of the bank would also be orthodox. A CEO would be responsible to a board, composed of politicians, experts, and stakeholders, alongside regional directors of the RDBs.
A NIB of a sufficient scale, and funded and managed in the right way, could be a radical way to socialise capital across the whole of the economy and support the roll out of a Green New Deal, not just a mechanism to provide cheap funding for small, private businesses. An initial bond issuance to capitalise the bank by government seems sensible — though it should be larger than £20bn. But the bank doesn’t need to act like a simple intermediary — raising money on private capital markets and on-lending to other private institutions. It should be able to lend directly to businesses themselves, as well as proposing its own investments, such as in infrastructure or energy projects. The majority of the NIB’s bonds should be bought by the People’s Asset Manager, as outlined below. It should include regional and local subsidiaries, created and managed in coalition with local communities. Effectively, the NIB should become a lending arm of the state, issuing bonds that could be bought by the state and given to the PAM, with the NIB then lending this capital on directly to sections of the economy that needed access to finance.11
The NIB will not need to be constrained by the macroprudential regulatory framework outlined above that would be applied to its private competitors. Instead, it should expand and contract its lending activities counter-cyclically based on the stage of the financial cycle, directed by the Bank of England. The NIB should also be connected to a series of regional and local institutions that are able to provide loans to small businesses, based on their geographical knowledge and local relationships. Considerations of counter-cyclicality should not, however, limit investment required for decarbonisation, which must take place as soon as a socialist government comes to power, regardless of the state of the economic cycle, counterbalanced by reduced lending and investment resulting from the greater regulation of private finance.
The NIB’s governance structure should be democratic. Its board should be staffed with government ministers, representatives of labour and social movements, and some directly elected representatives. The regional and local investment banks should also have boards, staffed with representatives of the NIB, local stakeholders and directly elected local repre- sentatives. The scale of lending would be directed by the newly-democratised Bank of England, and the activities for which capital would be provided would be determined according to the democratically-determined missions.
But perhaps the most radical element of such a scheme would be to allow it to act as the investment arm of the People’s Asset Manager (PAM). Much as today’s investment banks generally also have their own linked asset managers the bank could help to negotiate investments by the PAM into the corporations for which it was providing funding. This would ensure that the finance provided by the bank didn’t simply serve to enrich private shareholders but was distributed evenly across the economy as a whole.
6. A People’s Asset Manager

If institutional investors like Blackrock, who manage billions of dollars’ worth of other people’s assets, have become some of the most powerful entities in the international economy, then the creation of a democratically-owned and run alternative could be a revolutionary project for a socialist government. I propose the creation of a People’s Asset Manager (PAM), which would act alongside the National Investment Bank outlined above to steadily socialise ownership in the economy as a whole, in the same way that many international investment banks also have asset management arms to allow them to take advantage of investment opportunities that arise from their lending activities.
The PAM should contain a Citizen’s Wealth Fund (CWF), which would be capitalised using existing collective assets, and added to through tax revenues and the profits from the system of democratic finance.12 After several decades of almost continuous privatisation, the British state is relatively asset-poor. The Bank of England, however, owns a substantial amount of assets in the form of Treasuries — these could be used to capitalise the Citizen’s Wealth Fund as the Bank unwinds quantitative easing. Building on the proposal outlined by IPPR, this fund should be added to through revenues of a reformed system of wealth taxation, as well as by transferring the Crown Estate and other collectively owned assets into the fund. When it is large and stable enough, the CWF should use its returns to pay out a modest Universal Basic Dividend (UBD) to all citizens. This UBD would boost incomes and lock in support for the system of collective ownership – just as right-to-buy locked in support for privatisation.
The NIB and CWF should then work alongside one another to identify investment opportunities that would promote collective ownership over strategic sectors of the economy, to increase investment in socially and environmentally desirable activities and, subject to these two primary goals, to maximise the fund’s returns. When the NIB lends to a promising company, it should identify opportunities for the CWF to invest in that company in order to take advantage of the growth that would be fuelled by the NIB’s lending. The CWF should also invest in other strategic sectors of the economy as part of the Green New Deal— the state could provide bonds to allow the CWF to buy up stakes in private companies if necessary. Future nationalisations could also be undertaken through the CWF. The CWF should balance its investments between domestic and international assets that support the aims of the Green New Deal with maximising risk-adjusted returns.
The PAM would also manage the private assets of domestic savers via public pensions pots, and the mutual and insurance funds that currently send their capital to private asset managers for investment. These funds would be encouraged — either via tax incentives or regulation — to allow the PAM to invest funds on their behalf. The government should also consider providing tax breaks to savers who invest their money in the PAM upon the point of withdrawal. The aim of the private fund would have to be to maximise risk-adjusted returns, with the Green New Deal coming as a secondary consideration, but this could be subject to negotiations between the PAM and the mutual and insurance funds involved and their members.
These two funds should be managed separately, and democratically, with the managers of each fund directly accountable to elected boards comprised of key stakeholders and citizens. The majority of decision makers in the PAM should be directly elected, with the remainder being selected by stakeholders including the government, trade unions, and community groups. As the PAM increased in size and importance, these elections would grow in significance, allowing working people to determine their priorities regarding collective investment.
The PAM should take up a role as an activist investor in the corporations whose stock it owns. But rather than pressuring companies to maximise shareholder value, it should use its shareholdings to support the objectives of the Green New Deal. For example, encouraging sustainable business practices, promoting internal democracy, reducing pay differentials, closing the gender pay gap, and promoting responsible tax practices. Over the long term, as the PAM increases its holdings over domestic enterprises, it could provide an important role in promoting accountability amongst state- or worker-owned corporations — both promoting efficiency and ensuring these corporations are acting in the interests of stakeholders.
7. Institutional Reform

To achieve any of these measures it will be necessary to democratise the UK’s existing financial system. The first step in such a process should be to radically transform the Bank of England. Currently, the Bank of England is an independent entity, which operates based on a mandate set by the Treasury. The Bank has a mandate to control consumer price inflation and to maintain financial stability, the former of which is achieved through controlling monetary policy via the Monetary Policy Committee (MPC), and the latter of which is achieved through monitoring, issuing guidance, and occasionally offering financial support to the private banking system via the Financial Policy Committee (FPC). The notional independence of the Bank of England has been undermined through quantitative easing, which has seen it purchase billions of pounds worth of government debt. This has both undermined the distinction between fiscal and monetary policy and, by inflating asset prices for the wealthy, proven that monetary policy has incredibly important distributive impli- cations that mean the Bank must be held democratically accountable for its decisions.
As has been argued elsewhere in this book, the removal of significant portions of economic policymaking from the realm of democratic accountability has served to facilitate policy capture by elites. In the absence of a democratic pushback, the decisions of the independent Bank of England and other technocratic institutions responsible for supervising the finance sector, have come to reflect the interests of the powerful finance sector. If the UK’s most important economic institutions are not democratised, then the powerful will use their control over our governing economic institutions to thwart a transition to democratic socialism.
The Bank of England must therefore be reformed and democratised. The introduction of an asset price inflation target for the FPC should be accompanied by a change in the MPC’s remit: rather than simply monitoring consumer price inflation, the MPC should monitor the output gap — the gap between current demand in the economy and potential supply. These committees would have to work together very closely to monitor both consumer and asset price inflation and ensure they are coordinating their interventions to maximise their effectiveness. If there is a negative output gap, interest rates should be lowered, and guidance issued to the public banking system to increase lending to strategic sectors — and the opposite guidance should be given where there is a positive output gap. The makeup of the FPC and the MPC should also be changed to include representation from the government, labour and social movements, and other stakeholders, as well as containing a majority of directly elected members. Their decisions should be scrutinised frequently by an independent panel of citizens, including some experts, who would report back to the government and, if necessary, directly challenge the Bank’s decisions.
The privileges currently enjoyed by the City of London Corporation should also be removed. The City of London Corporation is currently the only part of the UK over which the democratically-elected government has no authority, and its representative is the only unelected member allowed to enter the House of Commons. This is no accident. The City is supposed to be above and beyond democratic accountability. Governments may come and go, but the City of London Corporation remains, its authority untouched by the changes that take place around it. A socialist government must remove the City’s special position and turn it into a local authority, just like any other, with democratically-elected representatives and a franchise based on residency.
The UK should also reform its relationships with the overseas territories and crown dependencies. This should be accompanied by a sweeping reform of financial transparency regulation. All private institutions — from banks to corporations — should have to submit to the public country-by-country reports of their revenue, profits, staff, and other costs, allowing regulators to determine whether they are avoiding taxes.13 All financial institutions, and all their subsidiaries, should be forced to operate at the highest levels of transparency, making all requested information available to authorities when asked. These requirements should be extended to all of the UK’s overseas territories and crown dependencies. The UK should also unilaterally opt to share all this information with other states, in the hope that this will be reciprocated. This should be accompanied by an increase in resources for tackling financial crime and tax evasion.
Many of these proposals would represent significant constitutional changes. As such, it would make sense for the democratisation of financial institutions to take place alongside a wider set of reforms to the British state. Other necessary measures not touched on in this section include reforms to the civil service — including a substantial curtailing of the power of the Treasury — Lords reform, and a programme of reform to local and regional government, aimed at increasing local democratic accountability and decentralising the British state.
8. Definancialising the Global Economy

Many of these measures would be opposed by existing international institutions. The power of these institutions to impose sanctions on states perceived to be in breech of collectively determined rules rests firstly on those states’ membership of these institutions, and secondly the hegemonic power of the United States to enforce the rules. The first issue can be reversed by exiting these institutions, while the second must be challenged directly by moving socialist states out of the orbit of US imperial power – a challenge facilitated by the erosion of US hegemony likely to be seen over the coming decades.
Both will involve creating new international institu- tions based on alliances with states with similar interests in challenging the hegemony of finance-capital and US imperialism. Alongside other socialist states in the global North, this would have to be premised upon a grand bargain with states in the global South. Debts should be cancelled, tax havens shut down, unfair treaties renegotiated, and unequal international institutions reformed or replaced. Extractive links between north and south should be replaced with mutually beneficial trade links, as well as transfers of aid, investment, and technology.
Support should be offered to socialist movements around the world attempting to undertake similar transformations of power in their own states. Such a programme will rely on the creation of a new international economic order. This will have to be delivered through genuinely multilateral institutions that abide by the principle of one country one vote, rather than one dollar one vote. These new institutions would provide equal weight to every sovereign state and allow these states to pursue models of development that support the power and prosperity of their people.
Finance for the People

Together, this set of interventions would serve to curb the power of finance capital, whilst maintaining — and improving — the set of financial services to which consumers and businesses would have access. Some of the interventions outlined in this chapter, such as debt refinancing, would also provide an immediate boost to living standards, shoring up support for a new socialist government. Finance capital would be likely to resist these moves, so it is critically important that these measures are prepared well ahead of any socialist government coming into power. An incoming democratic socialist government should view these interventions as a Ridley Plan for the financial system and prepare accordingly.
Beyond all this, perhaps the most important role of a British democratic socialist government would be to provide the rest of the world with a beacon of hope. A socialist government in one of the most heavily financialised states in the global economy would seriously undermine international financial capital, concentrated as it is in the City of London — but it would also rally socialists all over the planet. After decades of capitalist realism, it would be possible to imagine a world based on cooperation rather than competition, on mutual aid rather than exploitation, and on stewardship of our common resources rather than ruthless extraction.

CONCLUSION

There is no final victory, as there is no final defeat. There is just the same battle. To be fought, over and over again. So toughen up, bloody toughen up.
— Tony Benn.

In the summer of 2001, the first meeting of the World Social Forum was held under the slogan “Another World is Possible”. Delegates to this socialist alternative to the World Economic Forum stated their intention to disrupt capitalist globalisation, champion the rights of the global South, and resist American imperialism. Few heeded their rallying cry. Just over a decade earlier, the contours of the new global system had emerged with the fall of the Soviet Union, and free market cheerleaders were all too happy to declare that this new global system was now set in stone. History was over. Capitalism had won. Globalisation — constructed as a neutral, inevitable process — would bring the benefits of the free market to the more backwards parts of the world if they would only let it in. The planet was suffering from an acute collective depression that Mark Fisher termed “capitalist realism”: it would have been easier for most people to imagine the end of the world than the end of capitalism.
Seven years later, those same people could have been forgiven for thinking that they were living through both. The financial crisis of 2008 rocked the global economy to its core, exposing the economists’ dreams of taming the economic cycle as pure fantasy. When the US housing bubble burst, the financial flows that sustained the global banking system suddenly ground to a halt. The fictitious capital that had been created in asset markets over the preceding decades evaporated and many financial institutions, corporations and households found themselves insolvent as a result. The financial crisis that had begun in the US housing market swept around the world, creating the longest and deepest global recession experienced since 1929. Trade and investment flows fell sharply, marking the beginning of a slowdown in globalisation that endures to this day.
Political leaders were quick to employ their own version of capitalist realist discourse. The financial system must, they argued, be saved. There was no alternative. Ordinary working people would be the ones to suffer if it was not. National governments pumped liquidity into the financial system, hiked up deposit insurance, and eventually provided their ailing domestic banks with much needed capital. They rushed to implement stimulus programmes, cut interest rates, and launched the biggest monetary experiment since Bretton Woods in the form of quantitative easing. Those countries not in control of their own monetary policy found themselves facing the wrath of the bond markets. The financial crisis swiftly mutated into a sovereign debt crisis, with a particularly acute impact on the Eurozone. States all over the global North looked at the unfolding Greek tragedy with horror. Austerity, they claimed, was the only way forward. In few other parts of the world did austerity proceed as swiftly and as brutally as in the UK, where the Conservative–Liberal Democrat coalition government implemented a programme of cuts so harsh that it has been linked to 120,000 deaths over the last decade.
This succession of injustices was shrugged off by centre-left parties around the world, themselves unable to imagine that there might have been a different way to respond to the crisis. In the immediate aftermath of the crash, there didn’t seem to be any resistance at all. By 2015, the near collapse of global capitalism had come and gone without once threatening the political system that underpinned it. But all was not as it seemed. For those in education when the financial crisis hit, the spell of capitalist realism was broken. Their identities were formed during a time of deep uncertainty, polarised political discourses, and crumbling institutions. They lived through the death of the world of neoliberal prosperity, and the birth of the world of post-crisis stagnation. They could see the contingency of the existing order. Suddenly, another world was possible again. But what kind of world would it be?
Ten and a half years to the day after the collapse of Lehman Brothers, the planet was presented with two potential futures. On 15 March 2019, a white supremacist opened fire on a mosque in Christchurch, New Zealand, killing forty-nine people, from young children to the elderly. The killer, Brenton Tarrant, posted a “manifesto” on Twitter before the shooting, in which he claimed that it was necessary to create a “climate of fear” for Muslims living in the West to prevent a “white genocide”. He claimed to have been inspired by Dylann Roof, who killed nine African Americans in a church in the US, and Anders Breivik, who detonated a van bomb in Oslo, killing eight people, and then massacred sixty-nine young leftists at a camp for the
Worker’s Youth League, to publicise his own anti-migrant, anti-Islam manifesto.
On the same day, one million students from all around the world took part in an international school strike to protest politicians’ inaction over climate change. Two thousand protests took place in 125 countries, with students from all corners of the globe demanding that their governments take action to protect their futures. Whilst commentators from the mainstream press jeered, students in the UK chanted “Oh Jeremy Corbyn” in support of the opposition leader, whilst holding up banners criticising the Conservative government. The British demonstrators had their own manifesto. Their rallying cry: “Change is needed, and it’s needed now!”
These were not random, isolated events — they are symptoms of a decaying system. Finance-led growth collapsed in 2007, leaving stagnation and entropy in its wake. Our political and economic institutions were built during the boom and are not equipped to deal with the tensions that have arisen since the crash. Ruling elites have buried their heads in the sand, desperately defending the remnants of a dying model, whilst everyone else looks into their future and sees only hardship and decline. Collective sense-making, supervised by a media out of touch with the conditions faced by ordinary people, has broken down. In its place, new narratives have emerged among new political communities — whether white supremacists on the internet, or climate strikers in their schools. All around the world, people are turning to one another and saying the same thing: “things cannot go on as they are”.
The gravity of this moment is hard to grasp for those who lived through the period of stability following the fall of the Berlin Wall. But perhaps the most important lesson to have emerged from the events of the last decades is that no capitalist system can remain stable for long. The global economy does not operate according to the predictable laws of neoclassical economics, thrown off course only by external shocks. Instead, capitalism engenders complexity, meaning that even the best organised capitalist economies inevitably tend towards chaos. Capitalist political and economic institutions attempt to contain complexity by subjecting capitalist societies to rigid hierarchies, in which owners have all the wealth and power. But, as Marx has shown us, such institutional configurations — whatever their nature, from socially democratic to free-market libertarian — cannot contain the chaos unleashed by the profit motive. When these institutions can no longer control the contradictions they were designed to accommodate, they strain, and even break. Such periods are marked by political, legal, and social upheaval, frequent transitions of power, and even revolutions.
The decade since the financial crisis has been one such period. Finance-led growth is a system premised upon wage suppression and rent extraction by elites — a process that creates little of value even as it transfers resources from the bottom to the top. With ever more resources controlled by the owners of capital, the only thing sustaining Anglo-American capitalism before the crash was the creation of ever greater amounts of debt. But as this debt has dried up, the stagnation created by a system premised upon rising inequality has been revealed. Economics increasingly resembles a zero-sum game, in which more for one group means less for another. And those with the political power are using it to monopolise the shrinking gains from growth for themselves. As long as the foundations of our finance-led growth model remain the same, then these contradictions will continue to escalate.
In this febrile political climate, the so-called centre — committed to propping up the status quo — cannot hold. When the liberal establishment decries the rise of “populism”, they are demonstrating once again that they lack any understanding of the current political moment. The disdain directed at those who attempt to create political change outside of the “civilised” institutions of liberal democracy involves a total failure to understand that those institutions no longer work — something that is quite easy to forget when you are situated comfortably inside them. Rather than articulating a vision of what a new society could look like, the liberal elite comfort themselves by suggesting technocratic tweaks to various policy areas in an attempt to make the system work again. The old order is sinking, and the ruling classes are rearranging the deck chairs.
Elites may continue to claim that “there is no alternative”, but deep down they know that capitalist realism is dead. The students who took strike action to protest the death of their planet are not bound by its constraints. But neither are the far-right extremists we see on our TV screens — either those who inhabit positions of power, or those who conduct brutal acts of mass-slaughter. Only those who know that a new world is coming can prepare for its arrival, and today, we face a choice between socialism and barbarism. When the international financial press praised the election of far-right President Jair Bolsonaro in Brazil, we saw where the allegiances of the ruling classes really lie. The establishment would much rather watch human beings turn against one another in a fit of fascist hysteria than watch them work together for a new and better world built on equality rather than hierarchy.
Ultimately, capitalism will end in a great battle between those who want to see human beings fight one another over the scraps of a dying system, and those who want to build something new. For those who wish to avert the rebirth of fascism, socialism is the only way forward. Those who claim that socialism could never work tend to do so on the basis that societies and economies are too complex to be governed by the logic of planning — only the decentralised logic of the market can provide for an optimal allocation of resources. But as more and more economic activity is concentrated within huge, bureaucratic, hierarchical firms, and equally huge, bureaucratic and hierarchical states, this argument becomes ever more ridiculous. In fact, those who claim that hierarchy and complexity do not mix have a point. As humanity has become more technologically advanced and more interconnected than ever, the capitalist model has become less and less viable. Subjecting complex societies to the rigidity of a capitalist hierarchy based on concentrated ownership can only lead to instability and injustice.
Unable to control the forces of complexity it has called forth, capitalism must now make way for democratic socialism, which, rather than seeking to contain complexity through the hierarchy of the firm and the state, extends the liberatory principles that the opponents of socialism hold so dear to all areas of political and economic activity. Rather than being constrained by a boss or a bureaucrat, democratic socialism provides a way for people to self-organise in pursuit of a collective endeavour. Working in this egalitarian, decentralised and cooperative way allows human beings’ creative dynamism to be harnessed in response to some of the greatest challenges the world has ever faced. Democratic socialism allows people to take control of their communities, their workplaces, and their lives; it allows people to come together to build a better world.
Beyond Capitalism

Finance-led growth in many ways represented the apogee of capitalist development — trillions of dollars of capital being moved around the world, not to produce anything of value, but to seek out the next big speculative gain. The owners of capital became unimaginably wealthy on the back of this broken system, but when it collapsed under the weight of its own excesses, it was ordinary working people who were forced to bear the costs. The death of capitalist realism has led to the rebirth of ideology, and of history. The political upheaval of the last decade is a response to the re-emergence of fundamental questions about what kind of society we want to live in. Politics is no longer a question of making technocratic tweaks to a stable system; it is once again a great battle of ideas and the movements that champion them.
But with the death of capitalist realism, the greatest challenge faced by contemporary capitalist societies is no longer imagining a different kind of future, it is getting from here to there. Building a new politics does not simply mean changing the party of government. It involves a coordinated political project to radically rebalance power in society away from capital and towards labour. Doing so requires a series of overlapping interventions, mirroring those undertaken by the parties who built finance-led growth in the first place.
The division between those who live off work and those who live off wealth must take centre stage. As the disparity between those who own the assets and those who work for them widens, it will become increasingly important to make ownership the centre of our political debate once again. Left populist narratives that pit the people against the elite provide a good frame for this division, but unless the divide is filled with something substantive then it will be misused. Politicising ownership makes it clear that elites’ strategy for maintaining power is to divide working people amongst themselves to prevent the emergence of any powerful democratic socialist movement. The alternative is to allow elites to deflect peoples’ anger and disillusionment with the status quo onto other, even more exploited groups.
Alongside a thriving ecology of organisations committed to disrupting capitalist power relations, we also need political parties accountable to these movements which are committed to taking control of the commanding heights of the economy. The neoliberal electoral project rested on the extension of asset ownership to a wider section of the electorate, which convinced many middle earners to side with the owners of capital. The challenge for a socialist movement is to push this strategy even further by extending asset ownership to all working people in a bid to dissolve the distinction between capital and labour. The next challenge will be to ensure this radicalism is not diluted by a confrontation with the state. It is critical that socialist parties do not replicate the cartel model of political engagement pursued by many centre-left parties in the twentieth century. Instead, they must operate as movements within and outside, in and against, the state, held accountable by a large and diverse constituency able to impact the incentives faced by party leaders and parliamentarians.
Control over the state must be used to disrupt the power relations that undergird the existing order and build up new institutions in its place. Any socialist government will need its own version of the Ridley Plan to take on the entrenched power of finance-capital and deal with the threat of capital to strike or flee. Socialist governments-in-waiting must lay out coherent, comprehensible and exhaustive plans to socialise their financial systems. This strategy must highlight the division between those who own so much that they are able to live off the proceeds of their wealth — landlords, financiers, and speculators — and everyone else who is forced to work for a living. The message should be that the current model can only create more stagnation and decline. Far from anticipating capital gains of the kind seen in the pre-2007 period, those who own assets should expect to see their values decline as the economy stagnates. Their wages — eroded by several decades of finance-led growth — and their debts will matter much more for their sense of prosperity. A socialist project would unite working people based on their interests as workers — and would provide the material incentives to do so by increasing wages, writing off debts, and socialising ownership of capital.
In other words, socialist governments must take on the banks the way Thatcher and Reagan took on the unions. Modern financial systems have created complex but effective mechanisms for the owners of capital to gain control over large swathes of the economy. Collective control of finance capital would mean collective ownership of these resources, as well as drastically limiting the power of those who currently monopolise them for their own ends. Such a plan must be premised upon the assumption that a socialist government will face resistance from those who occupy positions of wealth and power and put in place contingency plans as a result. The immensely challenging task of establishing a new institutional settlement, whilst battling with the powers that undergird the old, will be the central task of any socialist party that comes to power during the interregnum.
Together, the set of reforms outlined in this book would serve to radically shift wealth and power in society away from those who currently monopolise it, and towards those who have been forced to pay for the excess of these extractive elites. Implementing this strategy would create a fairer, more equal, and more prosperous society. But it would also represent the beginnings of a far more profound shift. As a public banking system emerges and grows, alongside a People’s Asset Manager, ownership will steadily be transferred from the private to the public sector. As the state invests strategically to boost growth, employment, and equity whilst reducing carbon emissions to zero, living standards will improve, and the UK will become a model for green, sustainable growth. And as the democratic reforms to the country’s economic institutions are embedded and scaled up, public engagement with economic decision making will grow, making democratic collective ownership a reality. And as we reform or replace the imperialist institutions that currently govern the international system, we will put in place the conditions for this model to spread around the world. Were the planet not staring down the barrel of a gun, such a project might seem like nothing more than a utopian dream. But capitalism is dying, and it is bringing the extractive, neo-colonial international order down with it.
At this critical juncture — at the crossroads between extinction and utopia — human beings must take back control of our history. For decades, we have allowed our futures to be determined by the wealthy and the powerful in the hope that they would use their influence for the good of the whole. But the financial crisis exposed many of our political and business leaders for what they are: self-interested, exploitative, and reckless elites, who would rather see the planet burn than sacrifice an iota of their wealth. It is now clear that the only power we can rely on is our own. To those who believe that selfishness, a resistance to change, and an inability to cooperate are the defining features of the human condition, this is a source of despair. But for those who have faith in the power of working people to change the course of history, it should come as a beacon of hope. We have the technology and resources to build a world based on cooperation rather than competition — it is time for politics to catch up.