The New Serfdom

by Angela Eagle

  The second lie is that markets perform best when those who operate within them display ‘self-regarding materialism’, which is a posh way of saying ‘greed’. Turning conventional ethics on its head, what was once a deadly sin has been transformed into a virtue – one that will not only be rewarded, but is conveniently proclaimed to be essential to the proper functioning of the free-market system.

  In the past forty years, a toxic culture of venerating those who have succeeded in becoming fabulously wealthy has emerged in our societies. The notion that CEOs are uniquely responsible for the success of their companies and therefore need to be obscenely compensated has led to huge and growing inequalities of income and wealth between the top 1 per cent and the rest. According to research by the Chartered Institute of Personnel and Development, the CEOs of the biggest companies in our economy – the FTSE 100 – now take home in one year what an average UK full-time worker would take 160 years to earn. We know, however, that the success of any company depends on every part of the organisation, not just those at the very top. Like a Swiss watch, a company comprises myriad components that all need to work well and in sync for it to succeed. Comprehensive surveys show time and again that performance-related pay is a flawed concept, because pay is not a motivator. Research shows that we do better when we co-operate and are unified around shared goals rather than motivated by self-interest, as the manager of any sporting team would tell you. None of us could possibly get by on our own; we are better when we are together. Pay and reward should reflect that basic human truth much more than it now does.

  The third big lie is that inequality incentivises those with less to work harder, and is therefore a good thing. It follows from this that ‘progressive’ taxation and redistribution – taking from those who have more and redistributing to those who have less – reduces incentives for the less well-off to work harder, leading to economically suboptimal outcomes.

  Taken together, these three lies have seen the wealth and opportunity afforded to the 1 per cent race ahead of the 99 per cent. With the slowing of social mobility in Britain, how much we have at the start of our lives, not how hard we work or how well we lead our lives, is today the best predictor of what we end our lives with. This is a substantial part of the reason for the emergence of nihilistic, ‘tear-down-the-system’ populisms, from Trump to the animating forces behind Brexit.

  As democratic socialists, we are not arguing that everyone should receive exactly the same outputs for their work. Most British people believe some range of unequal income is acceptable, but it is clear that the range between the top 1 per cent and the rest is currently far too wide – and it is getting worse. The majority accept that doctors should earn a good wage, for example. But the majority are also likely to be angered at the stupendous rewards given to investment bankers responsible for tanking our economy or the CEOs of companies that aggressively avoid tax and under-pay their workers. According to study after study, it is the unfairness of our system that rankles most with people. It damages social solidarity and our mental health and actually holds our economy back.

  It’s time for us to ditch these three big lies and the market fundamentalist philosophy that goes with them.

  In the first part of this book, we will begin by looking more closely at democratic socialism and market fundamentalism, the two most influential political philosophies to have shaped our country in the past seventy years.

  In the second part of the book, we will assess where we are now. Before Clement Attlee’s transformative post-war Labour government and before the 1997 New Labour government, two reports assessed the state of our nation and laid the foundation for major reform. The first, published at the height of the war in 1942, was the Beveridge Report, which proposed major changes to the system of social insurance in Britain. The second, published in 1994, the Report of the Commission on Social Justice, formed the basis of much of the social policy pursued by Tony Blair’s New Labour government.

  The Beveridge Report aimed to tackle five ‘Giant Evils’ of society: want; idleness; ignorance; squalor and disease. The Commission on Social Justice added racial discrimination as a sixth. Twenty-four years later, we have extended that sixth ‘Evil’ to all forms of bigotry and intolerance. We have also added two new ‘Evils’, which have grown in seriousness in our era of Hayek-induced hyper-individualism: loneliness and mental illness.

  After assessing the current state of our nation, the third part of this book looks at what a Labour government, pursuing a reinvigorated democratic socialism, might do to remake our economy and our society in a complex and rapidly changing world. This begins with examining how a new ethical approach to our economy and our society would improve outcomes. It considers the case for creating an empowering state which actively intervenes to improve on market-based outcomes and ensure greater opportunities for all. We observe that the most pressing concerns facing us today, from the threat of global climate change to trading in a post-Brexit future, require not isolationism and selfishness, but engagement and co-operation with the wider world. We believe that we will do better if we create a fairer and more equal society where we maximise the chances for all to be included and play their part. And we observe that these values are central to the beliefs of democratic socialists the world over.

  Before we begin, it’s perhaps worth explaining why we felt we should write this book together. Like so many Labour friendships, ours started as two colleagues spending time together and discovering their similarities. We accept this may sound quite odd, because on the face of it we may not seem to have that much in common. Imran is six foot tall, Lancashire-born and of Muslim Pashtun origin; Angela is five foot three, a Yorkshire-woman and adopted Merseysider who made history as the first out lesbian government minister. But in spite of this, we soon discovered incredible similarities in the roots of our political convictions. One morning we were talking and discovered that when we were kids, both of us would regularly be woken in the middle of the night by the sound of our seamstress mums working on their sewing machines to keep the food on the table. Our common northern working-class roots and sensibilities made this book remarkably smooth to write. We agree on the analysis of what is going wrong in Britain, in particular the loss of social mobility and the terrible impact that has had on working-class people. We were both aspiring working-class kids given great opportunities to fulfil our potential and we fiercely believe everyone should get the same. Angela’s experience over twenty-six years representing her constituency of Wallasey, on the Wirral, and dealing with thousands of people’s problems during that time in her MP’s surgery, has given her countless real-life cases to draw upon in forming that analysis. We have no compunction in recommending a fundamental shake-up of our economy; one that will finally rebalance it after four decades of a politics that has been toxic to working people, who are expected to work harder for less and are more stressed, atomised and lonely than ever before. We believe there is another way and we both feel that it is the Labour Party, the greatest, most important force for liberation and social progress in British history, which is best placed to accomplish this historic shift. This book, we hope, will be part of our ongoing service to that great endeavour. We hope that you will agree with us and join the fight to create a better society.

  PART 1

  TWO IDEAS

  CHAPTER ONE

  MARKET FUNDAMENTALISM

  Vienna in the early years of the twentieth century was a seething ferment of art, science, modernism, political thought and debate. The perfect milieu in which to foment radical political thought, a number of people who would go on to shape the politics of the twentieth century resided there around this time, including the Communists Joseph Stalin and Leon Trotsky; a young painter named Adolf Hitler, who was inspired by the populist, anti-Semitic politics of the city’s mayor, Karl Lueger; and the father of political Zionism, Theodor Herzl. Living in Vienna too was another, perhaps less-known figure: Friedrich August von Hayek. Born in Vienna, the capital
of the mighty Austro-Hungarian Empire, in 1899, Hayek’s father, August, was a medical doctor and lecturer, while his mother, Felicitas, was an aristocrat and heiress, related to the philosopher Ludwig Wittgenstein. There could have been no better place than Vienna for young Friedrich to hone his analytical, economic and philosophical skills. Hayek was bright and took full advantage of opportunities to gain knowledge and develop his opinions. However, the First World War interrupted his studies, and he served in an artillery regiment in the Austro-Hungarian Army. That brutal, murderous war left an indelible mark on him. What on earth could have caused such madness, he asked himself, and how could we stop it from happening again?

  Although Hayek had initially flirted with democratic socialism, he eventually settled on economic liberalism as the answer to his ‘burning question’ of how to build a more just society. Individual liberty, he believed, was key to peace. Hayek’s career as an economist was glittering. He joined the London School of Economics in 1931, where he developed important and influential economic theories, and some decades later he would win a Nobel Prize for Economics.

  In 1939, however, war broke out once again in Europe, this time a result of the totalitarian fascism and expansionism of Adolf Hitler. Between 1940 and 1943, Hayek wrote The Road to Serfdom, his most politically influential work and the purest statement of his political and economic philosophy. It was a deeply personal work – indeed, it was one of his least technical and most polemical texts – written in defence of capitalism at a time when many believed that fascism was in fact a capitalist reaction to socialism.

  In the book, Hayek provocatively argued that socialism was the root cause of national socialism. He warned that a centralising state which sought the exclusive right to plan economic and social activity would require ever more intrusion and power. He warned that such a state would need to centrally aggregate a lot of information that is dispersed among the populace and private enterprise. In its zeal to make better-informed decisions, that information would be interpreted by an ever more powerful cadre of civil servants. And then, if the state had the courage of its convictions, he argued, it would demand the right to decide on how individuals conduct their lives to such an extent that it would squash their right to make decisions for themselves. In so doing, it would restrict their individual freedom, eventually making the citizen a mere serf: a cog in a vast machine that would continue to demand more control and greater servility and punish deviation from what has been planned from the centre. He claimed that the Nazis had succeeded in suborning the German people to their tyrannical programme because socialism had already done so much of the work in deindividualising citizens and persuading them to submit to state direction and authority in the name of their own security and welfare. Similar dubious arguments can still be heard today on the Conservative back benches.

  The Road to Serfdom was released to considerable controversy. George Orwell, a great opponent of tyranny, wrote in one of the more balanced reviews of Hayek’s book:

  In the negative part of Professor Hayek’s thesis there is a great deal of truth. It cannot be said too often – at any rate, it is not being said nearly often enough – that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of.

  He also stated, however, that

  [Hayek] does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.

  Other economists and philosophers were much less balanced in their criticism. This should have come as no surprise. Hayek’s thesis was deliberately provocative at a time when millions had met their deaths in a war against a fascist regime that represented the ultimate evil. Ascribing this evil’s success to the desire by socialists to make their societies fairer, more equal and more efficient was – in modern parlance – an epic troll.

  The Road to Serfdom received an approving reception from many Conservative and Liberal politicians to an extent that is forgotten now. In particular, it had both an immediate and enduring impact in the United Kingdom on the Conservative Party. Shortly after the book’s publication, then Tory Party Chairman Ralph Assheton was delighted to discover Hayek’s arguments. In 1942, Assheton had chaired the Conservative Party policy committee dealing with the Beveridge Report. Formed in response to Conservative concern at the widespread popular enthusiasm for the report, the committee concluded that universal state entitlements funded by increases in taxes would discourage hard work and act as a ‘sofa rather than a springboard’. His argument is still familiar to us today as one used by Conservative politicians and pundits when talking about social security – that the poor will only be incentivised to work if they experience hardship rather than kindness. They argue that if worklessness is rewarded by ‘handouts’, that punishes the economically successful and undermines the forces that drive growth, productivity and economic success.

  In Hayek, Assheton found a corpus of useful intellectual arguments, framed against the resonant and contemporary backdrop of the war, to justify the Conservatives’ instinctive, class-driven rejection of tax-funded state intervention and redistribution. He relayed its central arguments to the Prime Minister, Winston Churchill, and advised election agents and candidates to read the book. Assheton was so taken with it that he wanted an abridged version to be used as campaign literature. He went on to use some of Hayek’s core arguments in writing the initial outline for Churchill’s infamous 1945 ‘Gestapo’ speech, in which Churchill argued that a ‘socialist government’ run by Labour would need ‘some form of Gestapo’ to empower the ‘supreme party’ and its ‘vast bureaucracies’. The conflation of a larger state with a more dangerous and brutal one was a typically Hayekian flourish.

  Clement Attlee, then Labour Party leader, ruthlessly mocked Churchill’s speech for its hyperbole. Identifying Hayek as the source of Churchill’s arguments, he noted that the freedoms Churchill wanted to protect included employers’ rights to work children for sixteen hours a day, underpay women and neglect health and safety. It was in fact ‘freedom for the rich and slavery for the poor’, Attlee said, going on to argue:

  Make no mistake, it has only been through the power of the state, given to it by Parliament, that the general public has been protected against the greed of ruthless profit-makers and property-owners … [The Conservative Party] represents today, as in the past, the forces of property and privilege. The Labour Party is, in fact, the one party which most nearly reflects in its representation and composition all the main streams which flow into the great river of our national life.

  These arguments sound very familiar to us today. They represent the two most compelling ideological arguments of the twentieth century and, indeed, this century too. On one side, the desire of capital – to free itself to profit and keep those profits. On the other, the desire of the majority of workers – to enjoy lives that allow them their rightful share of health, opportunity and prosperity. This war between labour and capital continues to rage today, even if it is not played out in the more overt, class-based language that was once used.

  In 1945, millions of returning soldiers demanded better lives after having successfully defended their homeland and the world itself from fascism. The working classes, the middle classes and the Labour Party were united in their desire for change. They were determined to avoid the mistakes made after the end of the First World War, when Lloyd George’s ‘land fit for heroes’ turned into poverty, mass hardship and slump in the iron grip of the prevailing laissez-faire, pre-Keynesian economic orthodoxy.


  The Conservatives made a terrible mistake in likening Labour’s plans for a National Health Service and for social security based on national insurance for those returning war heroes to the need for a British Gestapo. It is a classic example of how engaging in hyperbole can overwhelm the point you’re trying to make. The Conservatives would go on to more successfully and more subtly use these Hayekian themes in the 1950 and 1951 general elections, which they ran under the slogan ‘Set the People Free’. Accepting that the NHS and welfare state were extremely popular and would be difficult to reverse, Churchill argued in 1948 in a well-received speech that ‘the socialist planners have miscalculated and mismanaged everything they have touched. They have tried to substitute government control and direction for individual enterprise and skill. By their restrictions they make scarcity; and when scarcity comes they call for more restrictions to cure it.’

  In the 1950 election, Labour managed to hold on to a slim majority. By this time, most of Labour’s towering figures had been in government throughout the war years and were increasingly ill and exhausted from the effort of winning the war and building the peace. In 1951, just six years after winning their first election and bringing about the NHS and welfare state, the Labour Party would cede the next thirteen years to Conservative rule.