Today, in terms of added value, financial sector activities at around 10 per cent of GDP have doubled in size relative to other sectors of the UK economy over the last 25 years and the sector is the biggest contributor to corporate profits in the economy. On the other side of the balance sheet, however, both individuals and corporate bodies are swimming in a sea of indebtedness with total assets held in the UK finance sector five times the size of the UK economy. This massive increase in indebtedness has added gratuitously to economic instability without any demonstrable gain to the economy, say, in the form of new investment in productive assets or in enhanced long-term productivity growth in the economy (Shahid Ahmed 2018).
In addition to financial services, aerospace, pharmaceuticals and the creative industries are often mentioned as sectors in which the UK economy has done well over the years and remain relatively strong in global terms even in 2022. However, it is not just their actual physical or intellectual output that has enabled these sectors to do well. Under the rubric of intellectual property, for instance, a major contribution to the UK economy has also been made by patents, trademarks, copyrights and designs owned by the companies in these industries. It is also the case that owning intellectual property confers on the owner monopoly powers.
Hence, why not then simply concentrate on changing the law to enjoy the benefits of monopolisation? In other words, what is supposed to be achieved by competition in the traditional model of capitalism should be entrusted to the far more reliable hands of UK’s own politicians and civil servants. In these circumstances, as in the US, the power of lobbying comes into play, which in the UK has been delivered, both in the past and now, more by old boy networks rather than by professional lobbyists. In the case of patents and copyrights, rights can be extended for prolonged periods of time.
More recently, the rapid development of IT has created yet another major source of monopoly revenue and of rent-seeking. In the old days, institutions like stock markets and commodity exchanges, in which the City of London specialized, were the standard intermediaries between buyers and sellers of stocks and shares, buyers and sellers of commodities and, in the case of the Baltic Exchange, between the buyers and sellers of cargo space. Lloyds had always remained a well-known name in insurance and reinsurance. Today, they have been eclipsed in importance by the digital companies of the 21st century. These new IT-based companies provide no physical product but have transformed their creators/owners into some of the richest persons in the world by merely offering trading and information platforms to the public. The UK today has the highest online expenditure per customer in Europe, whether for travel or ordinary day-to-day entertainment and shopping. Laudable achievements undoubtedly, but in the process it has sounded the death knell of the high street and outlets like department stores, the traditional providers of retail jobs, usually the largest providers of low-skill jobs in most economies.
The question arises: how do monopoly profits arise in these platform-type activities? Simply by starting small, keeping marginal costs close to zero, enticing ever-larger numbers of users, doing predatory acquisitions and then by setting up impassable entry barriers for new competitors. In other words, what these platforms do is to facilitate others to render a service or services to yet others charging either a nominal or no fee from any of them in the process by providing a means for the providers of goods and services to both advertise their wares and to sell them at the same time.
They are thus simultaneously purveyors of information, like traditional advertising in magazines and billboards, and shops, such as those found in shopping malls and on high streets. Their income is derived from the colossal advertising revenues and fees that they have succeeded in generating and their market values easily dwarf those of the traditional companies of capitalism, such as banks, heavy industry, car manufacturers, household goods etc. Even more significantly, they are privy to their users’ political leanings and preferences, far more intimately than polling organizations (Brett Christophers op.cit.). They thus play an economic and a political role largely hidden from the rest of society.
It has to be conceded that rent-seeking, like monopolization, is not an entirely new feature of UK capitalism. Both rent-seeking and monopoly were present in the UK economy from the earliest days. They were discussed in the first textbooks, however, as aberrations likely to occur, in extremis. But, both have now reached a level and reach that very few had anticipated, say, as recently as in 1980. It is worthwhile here to recall that as far back as 1880, Karl Marx predicted that there was a long-run tendency in capitalism for the rate of profit to fall. His explanation did not rest upon the immiserizing tendencies of capitalism for the workers – what we would nowadays call a deficiency of effective demand – more on a combination of technical progress and capital accumulation that then reduced the demand for labour.
In Marx’s schema, capital accumulation would lead to a steady rise in the scale of production and a tendency, in those lines of production where technology demanded a relatively high minimum scale of production, towards the formation of monopolies (Paul Sweezy 1970).
Once monopolization takes hold in one sector it tends to become the standard for the rest of the economy. But, neither monopolies nor rent-seeking are benign phenomena. In classical economics, rent-seeking was defined as a largely benign attempt to capture income streams to which one became entitled merely by way of holding title and not by way of any new value-addition in the production process. But, in practice, rent-seeking leads to higher prices, less choice and stifled innovation. In addition, with rent-seeking, the extra profits go disproportionately to the shareholders and senior management and almost never to the workers and employees in the form of higher wages, hardly a benign outcome for society. Marx presciently distinguished the holders of landed property (feudal barons) and financiers (money-lenders and usurers) from industrial capitalists more than 150 years ago as quasi-monopolists. But, such is the relaxed cultural environment in the UK that, since the 1980s, it has evolved into a rentier economy par excellence. The most striking feature of this evolution is that it has produced few misgivings within UK society.
To sum up, some three decades after the beginning of the neoliberal revival in the UK and with a wealth of information and experience available it is time for another radical reappraisal, like the one in the 1970s. Then, it resulted in victory for the proponents of neoliberalism. Today, we can and should ask to what extent are the principal tenets of neoliberalism sustainable at an intellectual level and what has neoliberalism actually achieved in practice? But, more than anything else, the assessment should establish whether neoliberalism can help us face the colossal challenges looming for the global economy over the next few decades, of which the UK is an integral part?
First, the UK economy has endured at least two major and several minor crises both before and since the beginning of the new millennium. Nearly all of them have had their origin in the most deregulated sector, financial services. We can also see that liberalised or lightly regulated capital with few, if any, checks on its deployment in the domestic economy and unrestricted movement across national borders has had major negative repercussions in the form of a gratuitous increase in uncertainty with implications for the investment climate and economic and social stability, especially in the most neoliberal countries, such as the UK. In other words, the hands-off approach, allowing free rein to markets has not delivered.
Moreover, since all financial sector operations are effectively underwritten by the tax-payer via implicit subsidy, unconstrained risk-taking has become fully incentivized in the sector, the resultant costs to be borne by the rest of society (John Kay 2015).
Second, no one can argue that these challenges have been an unexpected side-effect of the on-going march of neoliberal ideas. In the neoliberal world, markets were expected to do exactly the opposite – self-regulate so efficiently that regulation would eventually pass into history. The 2007-08 financial crisis finally confirmed that reliance on markets had failed spectacularly. Furthermore, footloose, volatile, short term capital flows have not only magnified boom and bust scenarios around the world but, once again, plunged many economies into a new set of debt crises.
Third, cutting spending by the State has really meant cutting spending on vital public services, a life-line for those on low incomes, thus reducing the social wage. But, as pointed out earlier, any expected benefits from a slimmed down State or of lower direct taxation have proved illusory. Most notably, the UK government’s health service has performed poorly in dealing with the combined pressure of the Covid 19 pandemic and the on-going demands for treatment. Indeed, in seeking, but failing, to lower the overall burden of taxation in the UK, taxes have become more regressive. Thus, a lack of resilience in the public realm has been achieved at little or no gain that lower direct taxes might have brought.