Skip navigation
The Progressive Policy Think Tank

Editorial: Institutional reinvention in our economy and polity

In the editorial for issue 20(3), we address the sense of inertia that has beset post-crash political reform in Britain and across the democratic world - what Colin Crouch has described as 'the strange non-death of neoliberalism'.

The depth and duration of the economic crisis faced by western countries has led to a renewed focus on the core institutional structures of their economies. In the typologies of political economists, Britain is ordinarily grouped with the deregulated market economies of the Anglosphere, with the coordinated economies of central (Christian democratic) and northern (social democratic) Europe forming the other main groups. Recently, scholars have argued that these economies have shared a common vector of liberalisation, suggesting convergence on a new, global and more inegalitarian norm. The crisis has not reversed this trajectory; instead, we appear to be witnessing the 'strange non-death of neoliberalism', as Colin Crouch has put it.

Yet as the political economist Kathleen Thelen points out, in an interview with Juncture previewing the findings of a major new body of research, liberalisation has taken many different forms. Far from leading necessarily to greater inequality, liberalisation, she argues, can be reconciled with fairness and egalitarian outcomes. Liberalisation in the Netherlands and Denmark, for instance, has been accompanied by strategies to ensure labour market inclusion and wage solidarity for workers in the expanding low-skilled service sectors, thereby stemming the pressure that drives up inequality. By contrast, the German experience shows that defending coordination in the core economic sectors and allowing liberalisation only elsewhere in the economy has led to a 'dual' economy, with protected workers in the key export companies joined by an army of service sector workers in flexible mini-jobs. Germany, as a result, has experienced widening inequality, albeit with higher employment, across the whole economy.

Thelen's account is instructive for economic reform debates in the UK. It suggests Britain should follow two paths. The first is a familiar one of focusing state resources on social investment policies that promote full employment and stronger economic performance, such as childcare, R&D, and education and training. These core foundations of Nordic social democracy remain central to the achievement of egalitarian outcomes, but fiscal constraints now limit how far they can be rapidly expanded.

The second is to pursue policies that can support greater egalitarianism in the labour market: better skills training for low-skilled workers, stronger rights to flexible working, higher pay for part-time employees, comprehensive school-to-work transition systems, and so on. But rather than require individuals or firms to carry the responsibility for these policies, as is typical of the deregulated Anglo economies, they should instead be institutionalised in partnerships between the state and employers that spread the burden of the costs, share risks and embed coordination. This is where institutional innovation must take centre stage. Lacking the sector-based or centralised wage bargaining systems of other northern European countries, Britain needs to create new institutions that can perform specific key tasks, such as coordinating employers to organise apprenticeships and design and deliver work-based training, spread innovation outwards from leading edge firms, and develop productivity-focused competitive strategies in the lagging sectors. Some of these institutions will be trade or sector-based, but a major plank of institution building must take place at the city or city-regional level, where public authorities can develop integrated economic development plans in partnership with local employers.

In contrast to the planning frameworks of post-war British social democracy, this should not be conceived as a technocratic or scientific matter. It is a deeply political agenda, requiring progressive forces to mobilise coalitions of support behind a new economic reform programme, and to embed its policies in discourses, practices and institutions that can endure in the long term. Businesses, trade unions and Britain's cities all need a stake in this project. The power and political resources each has at its disposal are critical, as will be the alliances that can be forged on key priorities - whether it is public investment in infrastructure, finance to grow private business outside the south east, or the devolution of power to the cities for skills and welfare-to-work policies.

Yet just as these challenges loom large, so our governing institutions have never seemed less able to meet and master them. David Runciman's acute account of the crisis in British democracy sets out how the elites leading our major institutions have all been found out - found to have been running cosy clubs which have lost trust and, most importantly, their ability to function effectively. In Runciman's view, the growth in inequality in Britain from the 1980s onwards gave rise to pockets of privilege in which elites colluded in lax scrutiny of each other. When the economic crisis struck, they became a joint liability. Institutions that should have been holding each other to account - from Parliament to the police, banking to the BBC - instead simultaneously lost legitimacy and public confidence. The resulting malaise has left them incapable of tackling Britain's underlying crisis of managerial politics. Instead of democratic renewal, we remain stuck in a perpetual present of scandal and mistrust - not so much back to the future as going nowhere fast.

Runciman's account places most explanatory purchase for the current state of British governance in its institutions and their leaders. But what if longer-term economic forces are hollowing out democracy itself? Are we entering an era of 'post-democratic capitalism' in which politicians 'rule the void', to quote the title Peter Mair gave to his last book? Claus Offe argues that advanced capitalist democracies can no longer give large sections of the population a reason to vote because the state has become emaciated. Citizens know that they live in a kind of 'post-democracy', because the state is structurally constrained from responding to their concerns by the dominance of financial markets and the lingering fiscal crisis. In the postwar era of welfare capitalism, the state could expand public services and social security; when its capacity to do this became more limited in the 1980s and '90s, consumers then turned to debt to finance their living standards. After the financial crisis, both of these routes have been blocked off. As Offe argues, 'citizens simply have to get used to the fact that a fiscally starved state is the wrong interlocutor when it comes to demands concerning "costly" policies ... As a result, growing numbers of citizens, particularly those who most depend on government social spending and services, have come to understand even more keenly than before that participating in democratic politics is a largely pointless activity.'

This conclusion will strike many as defeatist, even as an academic acquiescence to a version of Russell Brand's celebrity populism. But the facts of political inequality and the failing health of political parties across Europe are too stark to dismiss or to solve with the usual exhortations to voter education and mobilisation. We are a long way beyond that stage. Instead, we must become 'disillusioned with disillusionment', as the theorist Roberto Unger put it on a recent trip to the UK, and begin the long work of the institutional reinvention of our economy and polity.