What we learnt from Liz Truss’ dance with neoliberalism

When historians look back at the possibly very brief prime ministership of Liz Truss, who seems unlikely to make it to the end of the week, they’ll try to understand it in terms of the weird decline of the Tory Party and its complex relationship with neoliberal economic thinking.

That’s not to suggest some recognition shouldn’t be given to the spectacular political flaws of Truss and Kwasi Kwarteng — remember him? — summoned back from Washington on Friday to be offered as a sacrifice to save his prime minister.

But Truss’ determination to pursue a classic program of neoliberalism — tax cuts for the rich, a halt to plans to increase corporate tax, both now ditched — was wrecked with overwhelming force by the gods of neoliberalism: the markets.

For decades, we’ve been told “left-wing” economic policies of progressive parties could only ever be implemented if they gained the approval of financial markets. It turns out the same logic applies to attempts to implement an agenda straight from the pages of Hayek.

The Tories have had a complicated relationship with neoliberalism in recent years. Brexit marked an assertion of nativist sentiment against free markets and free movement of people, the very basics of neoliberal economic thought. Boris Johnson, ideologically incoherent and uninterested in doing the work of governing, could be almost aggressively anti-neoliberal. Under the rubric of “levelling up”, he backed government interventionism (mainly in the form of pork-barrelling targeted seats, but at a massive scale, and deployed well enough to help win a landslide in 2019), opposed migration as a solution to labour shortages and ran a mammoth budget deficit.

Truss — and this is the reason she defeated Rishi Sunak in the Tory Party members’ ballot to become PM — was something of a return to form, offering provincial Tories the promise of big income tax cuts as part of a broader “growth” agenda of tax cuts and deregulation. Having been a Remain supporter, she also wanted to boost migration to deal with labour shortages.

Financial markets, however, made it clear her tax package was completely unacceptable, sending gilts soaring, and plunging the UK-defined benefit pension system into a major crisis from which it has yet to fully escape — not to mention pushing mortgage and business lending rates up.

With the Bank of England insisting it wasn’t going to keep buying gilts beyond Friday, something had to give. Kwarteng, Truss’ close ideological ally, was dumped for the much-mispronounced Jeremy Hunt, who is now talking about dumping more parts of the tax package and spending cuts.

The bigger issue is how long till Truss, who is notionally protected from being ousted for 12 months, is prevailed on to retire to the study at No. 10 with a Scotch and a revolver.

This is unlikely to have happened if it weren’t for Johnson, whose fiscal policy blew debt out to 100% of GDP, and whose sheer incompetence and lack of interest in government primed markets to mark his successor hard. Years of politicians like Trump, Johnson and a slew of pinchbeck impersonators around the world have sharpened financial markets’ sense of the damage that elected politicians can do. Democracy is untidy, as Donald Rumsfeld once opined — too untidy for markets, often.

That leads us to a strange place: much of the pushback against neoliberalism in recent years has been not from its traditional critics on the left, but from the right. In particular, the anti-rationality, anti-truth sections of the populist right — led by the likes of Trump and Johnson — who exploited core elements of neoliberalism such as free movement of people and investment to portray themselves as nativist tribunes ready to defend their countries against sinister foreign forces. Many European countries are still making their own way through similar political shifts.

A similar — though by no means identical — process played out here under an ideologically incoherent Scott Morrison, who permanently expanded the size of government in Australia, though without working out how to pay for it. His replacements — like the post-Corbyn Labour Party, now the UK’s government in waiting — are market-friendly progressives, keen to rein in debt and expand immigration, and worried about any tax changes that will frighten international capital.

One can see a possible future in which progressives playing within the neoliberal rules become the natural parties of market-approved government, while the right remains conflicted between populism and neoliberal nostrums like low tax and high immigration. Where does that leave those who seek a society freed from the tyranny of financial markets?