‘Ending Britain’s cycle of decline’

Can Labour recover from this historic collapse? Before the 2024 election the warning signs were all too clear. The most common public descriptions of the state of the nation were ‘broken’, ‘struggling’ and ‘divided’. Britain, it seems, has lost the capacity to deliver progress for all.

Labour’s failure to overturn the deep-seated cycle of decline that it inherited lies in large part in an inadequate diagnosis. Its roots lie in the outsourcing of economic power from democratic government to private global capital. It is this transfer that has crowded out high social priority activity and delivered economic slowdown.

Yet Labour lacks a theory of modern capitalism and thus a route map for recovery. The new plutocratic masters of capital have created vast, anti-competitive corporations that are increasingly run for personal enrichment. The top 50 global companies – names such as Nvidia, Saudi Aramco and JP Morgan Chase – hold a 27% share of world GDP. This is up from 5% in 1980. 

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Google controls over 80% of Europe’s search market. Bayer-Monsanto, PepsiCo, and Nestlé dominate food markets. A few financial giants exercise immense leverage over investment, innovation, and the pattern of production. The UK’s financial sector holds assets of £27 trillion, ten times annual economic output, way above the country’s economic needs. In 1970, this ratio stood at a quarter of the economy. 

Keir Starmer rightly talks of the need for ‘wealth creation’, but draws no distinction between activity that serves the common good, and growth-sapping ‘appropriation’ aimed at diverting the gains from economic activity. It is the revival of ‘extraction’ that powers today’s towering personal fortunes through economic activity increasingly detached from economic and social advance. 

Examples include the rigging of markets, the manipulation of corporate balance sheets, and mass tax avoidance. A rising share of corporate profits go in dividends to institutional shareholders at the expense of wage growth and private investment. Appropriation is endemic to the boom in the private equity takeover of public companies, an industry dubbed a ‘blood sport’ by critics. Such companies – from Boots, Pearson, the AA, Morrisons, John Laing and a range of privatised utility companies – now employ around a tenth of the UK workforce. 

The private companies that have swallowed up great swathes of key UK public services from residential social care to educational support, stand accused of widespread profiteering by the Competition and Markets Authority. The quick and easy profits from these predatory business tactics come from aggressive financial engineering, opaque accounting, and the selling of key assets. Thames Water is bankrupt because its owner for 11 years, the Australian investment company Macquarie, dubbed ‘the vampire kangaroo’ by critics, took £2.7bn in dividends, increased the company’s pension deficit from £18mn to £380mn, and its debt from $3.4 to $10.8 billion.   

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With fragile public finances, and lacking the instruments to launch a public-led revival, Labour has turned to the world’s giant American asset management and tech companies, from BlackRock to Palantir, to restart a growthless economy. In and out of Downing Street their chief executives have struck lucrative investment deals in areas from artificial intelligence to data mining. Apparently forgetting the public costs of New Labour’s private finance initiative to build hospitals and schools, these deals come with both generous public subsidies and high return guarantees, while adding to the extensive reach of global capital into the British economy.

High inequality, heavily-marketised, and low publicly owned economies like the UK, will always steer resources to the demands of boardrooms, mega financial institutions and a swollen billionaire class. It is this that explains the deterioration of essential social infrastructure, and the lack of provision of key everyday goods and services – from local transport to adequate child and adult care – on which thriving communities depend.

Wealth concentrations power demand for extreme positional goods – from the private jet to the luxury yacht – that are only available to the super-rich. Scarce land and construction resources that could have been used to tackle a growing housing crisis are steered to luxury property development that serve minimal social goals. Britain hosts vast and lucrative industries, from tax avoidance to lobbying and public relations, whose sole purpose is to protect personal fortunes and buy economic power. To reverse decline, Labour needs a strategy that harnesses the country’s resources for higher social value activity. As the American President, Franklin D Roosevelt, declared in 1936, ‘The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little’. 

It draws on a background paper at the for the Compass/Progressive Economy Forum conference on 30 May ; Change:NOW! Mobilising the Progressive Majority – Compass

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