As Robert Brenner argued in NLR two years ago, the financial collapse of 2007-8 set a template for government responses to crises that threaten the means of existence. Whether it’s a global financial meltdown, a deadly pandemic or energy bills so high that many people can’t afford to pay them, the policy instrument of choice is the bailout.
In both the financial crisis and the first months of the pandemic, there was a broad consensus that governments needed to make extraordinary fiscal interventions to preserve the means of existence without threatening the economic status quo. Emergency bailouts were used to stabilise the crisis, followed by such further moves as quantitative easing, furlough schemes or – in the UK – stamp duty cuts, which saw house prices rising faster than before Covid.
Bailouts are an ideal intervention for a decaying neoliberal politics: they maintain capital flows, rising asset prices and the upwards redistribution of wealth, while supporting the minimum needs of enough of the population to prevent total social breakdown.
British politicians’ responses to soaring energy prices conform to the bailout consensus. Boris Johnson is promising ‘extra cash’, though leaving it up to his successor to work out the details (Liz Truss and Rishi Sunak have so far mostly offered tax cuts). Ed Davey, the leader of the Liberal Democrats, recently proposed an ‘energy furlough scheme’: the government would absorb the cost of rising energy prices and get some of the money back with a windfall tax. Labour soon followed suit, offering a similar cap to energy prices funded through some slightly more creative accounting.
In both cases, energy companies would receive large amounts of public money (at least £29 billion) to enable them to continue charging their customers sums that many cannot afford. With these proposals following so closely behind the pandemic bailouts, which had the backing of all UK parties, we can see there is broad support for such extraordinary interventions with very little thought being given to the causes of the crisis – beyond criticism of the outgoing prime minister’s personality.
The bailout consensus is strikingly similar to the model by which neoliberal capitalism has operated globally for decades. Energy producers and suppliers are extracting profits from the state by menacing the public with unaffordable bills, effectively threatening to remove the means of existence from millions of people. This process, of capital holding the public to ransom, has been going on for decades in the Global South, where countries facing financial, energy and even public health crises have been held to ransom by the IMF, World Bank and multinational corporations based in the US or Europe. Money to relieve immediate social meltdown was provided on the condition of structural reforms and repayment agreements that locked generations of citizens into decades of debt, economic restructuring and austerity to ensure the profits of corporations.
As Kojo Koram and others have argued, the IMF/World Bank interventions undermined the growth of alternative political movements and brought post-colonial nations into a capitalist system where wealth is distributed upwards. Practices once applied by imperial nations to colonial subjects have now been turned on their domestic populations. Ransom capitalism and bailouts are not new, but their scope has expanded.
Under the bailout consensus, as with the IMF interventions, the state and its citizens are expected to pay private companies’ ransom demands without taking anything substantive in return. There’s no suggestion that the public might acquire a stake in a company in exchange for the money they hand over. Shareholders and CEOs are provided with ‘protection’ or ‘compensation’ rather than being made to face the downsides of the risk supposedly inherent in investment. The bailout averts a crisis, but keeps things on terms friendly to capital.
There is an underlying assumption that at some point there will be a return to the ‘normality’ of self-regulating markets of private actors. But bailouts without structural change keep us on the path of ever-increasing losses for the public just to sustain the basics of life, while maintaining a failed market system which is not only generating crises but limiting responses to them – as many nations in the Global South have experienced for decades.
High inflation is not unique to the UK, but the capitulation to the energy companies’ ransom demands seems especially acute here, as is the actual rate of rising costs. France is able to lower prices through its state energy company, Spain and Germany have intervened to reduce the cost of public transport, and many of the proposed measures across Europe involve taking equity in energy companies or stricter regulation. But the UK is too far down the neoliberal rabbit-hole even to countenance such mild social democratic policies.
The next prime minister may be tempted to refuse the energy companies’ ransom demands and let people suffer and die as a consequence, but chances are either Truss or Sunak will be pressured into some form of bailout. The centre-left opposition parties could take the opportunity to buck the bailout consensus and instead consider substantive political and economic alternatives, such as public ownership, as conditions of another major fiscal intervention. Without these alternatives, especially in the face of climate breakdown, there will only ever be new crises, more bailouts and larger ransoms to pay to sustain the means of existence for huge sections of the public. A key difference between IMF bailouts and what is happening in the UK now is that there are no demands for major structural reform – rather, the demand is that things be kept as they are. That way, the ransom money keeps flowing.
