Socialism For The Rich, Capitalism For The Poor

A dozen years ago, Jonathan Freedland was trying to call the British Left away from Socialism and back to Liberalism, with a view to turning Britain into a miniature version of his rather rosy, Clinton-era view of the United States. But look at him today:

Gordon Brown used to say it so often it became a pantomime refrain: "No return to boom and bust". Well, the boom ended a while ago; now we're looking at the bust. The Black Monday of 2008, which saw £77bn wiped off London share values, was matched at one point yesterday on Wall Street, where even a drastic emergency cut in interest rates could not prevent wild volatility. The sages say we're heading into a global bear market, in which share prices can decline by more than 20%. The only argument now is over how drastic the impact will be on the real world, away from the traders' screens. The Pollyannas say we're in for nothing more than a slowdown, even if it is a sharp one. The Cassandras predict a fullblown recession; one American investment strategist anticipates the worst downtown for his country since 1945. And few believe that if the US takes that kind of kicking, we won't get hurt.

For those whose focus is on politics more than economics, this prompts two questions. The first is narrow and immediate: how will this affect Brown and his government? The second is larger and more searching: where does this leave the ideology that has governed not only Britain but the industrialised world for the past 20 years?

For Brown, the prospects should be bleak. His entire pitch for leadership has been his past stewardship of the economy. A stock market crash and possible recession could shatter that record. Less personally, it is a truism that elections are won and lost - mainly lost - on this ground. When money gets tight, and jobs get scarce, incumbents can lose. Just ask George Bush's father.

That, at least, is the conventional wisdom. The contrary view holds that it's precisely when times are tough that voters turn for reassurance to those leaders they already know. Margaret Thatcher was re-elected despite the recession of 1981, and John Major won amid economic gloom in 1992. This holds especially true if the alternative is seen as a shaky pair of hands, as both Michael Foot and Neil Kinnock were. Brown has to hope, then, that Britons will react to the storm by sticking with the rain-soaked helmsman already on the bridge, rather than chancing it with the untested Conservatives. To this end, as I have argued before, Labour needs to get to work fast in casting David Cameron and George Osborne as not only inexperienced, but also as cut from the very same cloth as the City bonus boys who got us in this mess in the first place. It may be unfair, it may rely on cultural prejudice, but it would be effective.

There is a more profound response the government could make to the crisis, one that relates to that second question. For surely this is the moment when Labour and the centre-left can dare to question the neoliberal dogma that has prevailed since the days of Thatcher. That creed has never looked weaker.

Even before the latest stock market woes, there were voices from deep inside capitalism - not confined to George Soros and Ronald Cohen - fretting for the sustainability of a model that causes such gaping inequality, with a class of super-rich "racing away" from the rest of society, to quote last week's study of the mega-wealthy by the impeccably non-ideological Institute for Fiscal Studies. How long would people be prepared to stomach a system that, to cite just one example, allows the founding family of the American store chain Wal-Mart to gain an estimated $90bn in 2005 - as much as the bottom 40% of the entire US population, some 120 million people, did in the same year? Still, it seems that plenty of today's masters of the universe could live with the charge of mere unfairness. The current convulsions are far harder to shrug off.

For they suggest turbo-capitalism is not just unfair - it is dishonest and dangerous. If that sounds excessive, focus, if you will, on the banking sector at the heart of today's mess. It was the reckless gobbling up and selling on of shaky subprime loans - mortgages given to bad-risk customers - by American banks, and the threat that those debts would never be paid back, that triggered the entire loss of confidence that stopped banks lending to each other and caused the run on our own Northern Rock. Those sub-prime debts were dodgy, but they were wrapped up and sold on as if they were triple-A-rated, pukka debts, as solid as a government bond.

That was dishonest - and you need only look at the cost to the taxpayer of Northern Rock, £24bn in loans and another £30bn in guarantees, to see how dangerous it has been for our economy and, given the diversion of public money that could have gone elsewhere, for our entire society. No wonder Financial Times guru Martin Wolf felt moved to warn his readers last week: "I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important - the political legitimacy of the market economy itself."

If the market economy is looking peaky, then its accompanying free market ideology should be on life support. Behold the hypocrisy. The free marketeers have spent the past two decades preaching against the evils of state intervention, the dead hand of government, the need to roll back the frontiers, and so on. Yet what happens when these buccaneers of unfettered capitalism run into trouble? They go running to the nanny state they so deplore, sob into her lap and beg for help. The results of their own greed - "exuberance", they call it - and incompetence have caused more than 100 substantial banking crises over the past 30 years, yet time and again it is the reviled state which answers the call for help. Four times in this period, the authorities have had to rescue crucial parts of the US financial setup. If the banks make money, they get to keep it. The moment they look like losing it, we have to cough up. In Wolf's brilliant summary: "No industry has a comparable talent for privatising gains and socialising losses."

The hypocrisy is on display again as "private" bidders for Northern Rock seek to have full control of the bank while the government keeps full responsibility for keeping it afloat. It's a great deal for them and a rotten one for us. The Rock is an extreme example, but the rest of the banks are not much better. Note the eagerness of Citigroup and Barclays to get their hands on the "sovereign wealth" of communist China: last time I checked, that was pretty state-controlled, but for some reason our freewheeling entrepreneurs don't seem to mind.

You could argue that capitalism is always like this, parasitical on the state. Whether it's the internet businesses that would be nowhere had it not been for the government research and development that created the web, or the vast agribusinesses and others dependent on the "corporate welfare" of state subsidy - an estimated $92bn a year in the US, according to the libertarian Cato Institute - it's time to admit there is no such thing as a free market.

Turbo-capitalism is happy to rely on us, the public, and our instrument, the state, when it gets in trouble. Now we should demand a say the rest of the time, too. Plenty of uber-capitalists are ready to concede that. The irony is, it's capitalism's more recent converts, including our own prime minister, who seem to find it so much harder.