Neoliberal economics: the political ideology which favours market capitalism, deregulation, privatisation, austerity, and shrinking the state, but whose principal result is the transfer of wealth from the poor to the rich. It has been the driving force of all British governments since Thatcher, including Blair and Brown, and similarly in other countries. As a result, the level of wealth inequality has reached extreme levels. As I’ve said many times, the greatest triumph of the right has been to persuade millions to believe that extreme wealth inequality is natural, fair, a good thing, and the result of objective market forces operating on a level playing field in a competitive, meritocratic society in which everyone has a fair chance. There has never been a bigger pile of bullshit.
The upward redistribution of wealth and power is a political choice. It is chosen with every tax cut for the rich; every reduction in the bargaining power of organised labour; with every privatised monopoly and every expansion of financialisation and globalisation. The effects of all these changes has been to depress the share of GDP going to wage earners and increase the share going to owners, speculators, managers, rentiers and inheritors. This is why the advances in output and productivity over those decades have not resulted in increased real wages; if anything, the actual buying power of wage earners has slipped back.
Neoliberalism has resulted in huge asset appreciation. The more assets you had, the more you gained. It’s not how smart you are, or how hard you work, that determines your share; it’s where you are on the asset ownership scale. Increasingly, it’s your family background which determines your life chances.
You might ask, is this outcome the intended result of neoliberalism, or just a by-product? After all, you can make a rational argument for free markets. But, don’t go by what they say, look at what they do. When the deregulated banks took on too much risk, too much leverage, and collapsed in 2008, the free-market response would have been to let them fail, and allow better managers to buy what was left at fire-sale prices. Instead the losses were absorbed by the state. Private profit, socialised loss; a repudiation of the most basic principles of market capitalism, but that’s what neoliberal governments all did. They protected the shareholders, the lenders, the overpaid bankers and speculators, printing trillions out of thin air to do so. Not very “small state”, was it? But it protected the rich. That’s how you know that this was the intended outcome all along.
Given that both parties of government (in Britain and in the US) bought into neoliberalism decades ago, it’s not surprising that the ordinary voter feels they have no meaningful choice. Harris, Trump, whatever. Trump at least talked the talk about draining the swamp, shaking things up, and standing up for the left-behind voters in the rust belt. But he doesn’t mean that he’s going to end neoliberalism. Nor will Keir Starmer.
All the same, wage earners who struggle to make ends meet are angry. Trump’s first election was a brick through Washington’s window. This time it’s a grenade down the chimney.
Years of self-centred individualism have resulted in a culture of purely personal success and a loss of the sense of community and of being in the same boat. The very concept of the public good has been suppressed. The days when a politician could say, like Kennedy, “ask not what your country can do for you, ask what you can do for your country” is long gone. Such sentiments raise only a cynical laugh today. Hardly anyone is interested in making a personal sacrifice for a common purpose.
The vast majority of people in the world do not buy into the selfish culture of neoliberal economics. We long for a safe, clean world, with sustainable ways of life. We want less war and more justice. In short, we would put the planet and humanity as a whole, ahead of greed and over-consumption. Does this make us communists? Not in the Marxist sense. I just don’t want to accumulate positional goods; I don’t want to drive an expensive car or fly in a private jet. A feeling of material security is nice, but is best provided through collective mechanisms. National success should not be measured exclusively by GDP; a culture of sufficiency would be better than the culture of individual excess. “Prosperity” doesn’t have to mean an individual having lots of money. The culture which enables an individual to amass near-infinite amounts of wealth at the expense of society is not truly prosperous.
Of course, it’s not only in recent decades that a few people have become super-rich. In Britain, the long standing concentration of wealth is reflected in the pattern of land ownership. About a third of Britain belongs to aristocrats; people such as the Duke of Buccleuch, the biggest individual landowner in the country with his 240,000 acres, who can trace his ancestry and title to the eldest illegitimate son of King Charles II in 1663. Or, Roger Tempest, whose 25,500 acres centre around Broughton Hall in Yorkshire where his family have lived since 1097. The keys to being rich in this manner are to have the right ancestors, obviously, and avoiding inheritance tax. Which brings me to the subject of IHT on farmland.
Why do farmers object to IHT? On last night’s TV news, a spokesman for the farmers’ union said that many farms make only a 0.5% return on the capital value of the land. Hence, he argues, they don’t have the cash flow to pay IHT with every generational transfer.
There’s a good deal to unpack here, starting with the presumption that it’s right and proper for large parcels of land to be kept in the same family for ever without any tax. This is the attitude of the monopolist or the feudal overlord. In fact, a steady turnover and regular changes of ownership, with nobody getting too big, are entirely healthy in any market. But, aside from that, why does any farmer accept a return of 0.5% when you can get 4.9% on 30 year government bonds, an investment as safe as the Bank of England, and all without doing any work? That’s literally ten times as much. Any farmer whose land is so absurdly over-valued should sell immediately, buy those bonds, and retire.
That they don’t do so, tells us certain things. One is that farming is a vocation, a lifestyle business, and that farmers keep doing it however miserable the returns. Another is that farmers lack the pricing power of producers in most other industries. Thatcher’s introduction of the IHT tax break in 1984 started a massive bubble of inflation in land values, of a similar kind to that of residential property values, trapping farmers in a bind.
Whenever you see a story in the Mail or the Express about property, rising prices are presented as unalloyed “Good news for homeowners!” who are widely believed to talk about little else at their middle-class dinner parties. So why don’t the farmers similarly celebrate the inflation of land prices to nosebleed levels? Perhaps because, in both cases, bubble valuations are disastrous. People now in retirement who bought a house in their youth are indeed asset-rich, but although they benefit from CGT exemption on their primary residence, their children can’t afford to buy a place, nor can they afford the rents demanded by landlords. The farmers are now in a similar place; their children can’t afford a farm. Both markets (land and housing) urgently need to have the air let out of the bubble.
There is little general understanding of the reason for the bubble inflation in either case. People talk about supply and demand, as if that determined property prices; it doesn’t. There are plenty of bedrooms; the problem is one of allocation and affordability. Average household size is smaller than it used to be. Besides, if ten households compete to buy nine houses, supply and demand tells you that prices will rise until the (financially) weakest bidder drops out; it doesn’t tell you at what price level that occurs. That, of course, depends on the availability of credit to financially weak people, and that is what has changed, and what has driven prices to crazy levels. House prices rose from three or four times average salaries, to nine times, as Loan-To-Value multiples were raised and interest rates were artificially suppressed. In farmland, prices have been bid up by rich investors attracted by the IHT exemption; they have no intention of ever dirtying their hands with ploughing, harvesting, or sticking their arm up the back end of a cow. In both markets, neoliberal policies have created market failures, to the detriment of society as a whole.
The re-introduction of IHT on farmland does mean that some larger landholdings may have to sell some parcels of land when they are transferred. This is not the end of the world; the sold land does not cease to exist, it just gets farmed by someone else. Sale and purchase of land is a zero sum game; the total amount of agricultural land changes only very slowly with time (as some of it is developed). The land simply doesn’t belong to the same family who have owned it since one of their ancestors chose the right side in the Wars of the Roses. The end of these perpetual monopolies can only have good effects. The monopolisation of land in Britain is one of our biggest, but least talked-about, problems. Personally, I would have tried a little harder to target the tax on absentee landlords, those landowners who bought largely or entirely because of the tax break and who don’t actually do agriculture themselves. The people who plant crops, raise livestock, milk cows and drive tractors, deserve a break, but bear in mind that they still have the option of giving their land to the next generation and escaping the tax under the 7 year rule; and if that doesn’t work, they also have a higher threshold and lower tax rate than the rest of us. I’d also seek to target the very biggest estates, breaking them up and reducing them substantially. If the Duke of Buccleuch’s 240,000 acres were subject to 40% IHT at each generational transfer, a lot of land would be released to smaller owners. But, somehow it’s the smaller owners who seem to be the ones most affected. The wealthiest 1% of people in Britain own between 50% and 75% of the land; much of these holdings date from the enclosures and clearances, those thefts of common land which were the original privatisations. It’s time to dispossess them and reform landownership; and IHT is the best tool for the job.
Notes from Interesting Times 