These are not the salad days of capitalism.

The banking crisis, compounded by a series of scandals, has undermined popular support for free market, laissez faire economics.

Yes, it’s true that a lot of the blame attaches to the fact that true market principles were never properly adhered to in the first place. But that sort of argument sounds a lot like the ‘should’ve, would’ve, could’ve’ excuses that western Marxists used to deploy when confronted with the real world failings of their favoured ideology.

Furthermore, it’s not just about the crisis and the scandals. The intellectual underpinnings of neo-liberalism are coming under renewed attack:

Robert Skidelsky, in his review of a new book by Adair Turner for Times Literary Supplement, provides a useful summary:

  • “His book challenges the three main planks of what he calls the ‘instrumental conventional wisdom’. The first is that the object of policy should be to maximize Gross Domestic Product per head; the second, that the primary means of doing this is to create freer markets; the third, that increased inequality is acceptable as long as it delivers superior growth. The attack is devastating, leaving little of the policy edifice of the past thirty years standing.”

The right has yet to mount a convincing defence on any of the three points, but that doesn’t mean the left has won the argument – because having successfully made each point, they’ve got absolutely no idea what to do with it.

Firstly, on GDP:

  • “The case against making increased GDP per capita the overriding policy objective is that it doesn’t deliver the increased happiness or welfare if promises.”

This does appear to be the case. Above a particular level of per capita GDP there’s little evidence that further growth in average income increases life satisfaction (at least not across the population as a whole). The contemporary leftwing response to this is emphasise quality of life – particularly those aspects that can be secured through greater investment in public goods. The trouble with this, however, is that an expanding role for the state depends on a growing tax base and/or more government borrowing – the financial sustainability of which depends upon, er, continued economic growth.

Secondly, on free markets:

  • “…Turner argues that the proposition that freer markets bring faster growth is not true in any case… There is no evidence that the growth of rich countries accelerated following extensive market deregulation in the 1980s.”

Inconvenient, but true. Except that without the financial deregulation that took place, governments would never have been able to borrow so much money at so little cost. A more tightly regulated financial system would have meant (and will mean) less borrowing and therefore a smaller state. What, one wonders, does the left have to say about that?

Finally, there’s the problem of inequality. There’s no doubt that, in recent decades, the rich have taken an increasingly large slice of the pie in both Britain and America. Furthermore, there’s strong evidence that “more equal societies record greater levels of happiness.” However, there’s equally strong evidence that the left’s standard response to inequality i.e. redistribution also creates unhappiness by fostering welfare dependency, not to mention the resentment of ordinary working people (who are much more likely to live next to a benefits-dependent neighbour than a grotesquely wealthy one).

Ultimately, the reason why the left is failing to win the battle of ideas is that the crisis of capitalism goes hand-in-hand with the crisis of statism.

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