Waiting for the Etonians: Reports from the Sickbed of Liberal England

By the twenty-first century, the politically correct had placed racism and homophobia off limits. The culture industries compensated by turning on underprivileged whites with all the suspicion and condescension they displayed towards the old upper class. Wealthy media executives commissioned shows such as Little Britain and Shameless in which the white poor were white trash: stupid teenage girls who got pregnant without a thought for how they would care for their babies; alcoholic fathers with delinquent children who wallowed in the illicit pleasures of drugs and sex, which the taxpaying viewers could enjoy only in moderation because they had to go to work in the morning. The poor were the grasping inhabitants of a parasite paradise, scrounging off the cozened middle classes in television comedy, or freaks to be mocked on the British versions of the Jerry Springer Show.

There was truth in the stereotype—for there is truth in all stereotypes. Television comedy producers could point to estates with families that had not worked for generations, living at other people’s expense on the edge of the law. The producers of the reality shows could say that they did not force their freaks to go on air. Contestants and guests willingly played their parts, hamming up their performances for all they were worth to secure a fleeting moment of fame. The failure of the BBC and Channel 4 was not their abandonment of residual notions of pity for the victims of an increasingly harsh financial system, but their lack of imagination. They did not have the intelligence to realise the fragility of their own and their scoffing viewers’ lives. They never said, ‘Don’t laugh too loud because one day you may be poor too.’ In the broadcasters’ version of the make-believe world, the gap between living in the house with the Northern Rock mortgage and being on the council house waiting list was unbridgeable. Brute economic forces did not push people into poverty. The poor were poor because of their own depravity and weakness. They had chosen to be the way they were.

The idea that there would soon come a time when hundreds of thousands would face penury through no fault of their own was beyond them.

The high arts occasionally played the same games with race and class. In the 2007 film adaptation of Monica Ali’s Brick Lane, cast and crew successfully conveyed the novel’s sensitive portrayal of the struggles of a young Bangladeshi wife in London’s East End, but could show her white neighbours only as neo-Nazis or obese and tattooed grotesques. In general, though, literary writers and film-makers had little interest in deprivation and wealth, and failed to see the connections between the two. Raised in public sector families, educated in universities and on creative writing courses, and working in day jobs in academia, they were the artistic equivalents of Westminster’s political class: narrow professionals with few outside interests and fewer experiences of life beyond their trade. The only part most of them played in the debates of the day was to mouth the standard liberal platitudes and applaud when actors at agitprop theatres told them that Tony Blair and George W. Bush were very bad men.

No writer is obliged to write a state-of-England novel, but so few wanted to that the critic D. J. Taylor complained in 2007 of ‘the fatal detachment of the modern “literary” writer from the society that he or she presumes to reflect’.

The markets were on the longest run in history, creating greed, envy, barely disguised sexual competition, riches and ruin. The decisions made in Canary Wharf and Wall Street affected everyone, high and low. But Taylor concluded that when it came to talking about ‘globalisation, the rise of the international money markets, the creation of a virtual economic world stratospherically removed from the processes of ordinary life—the number of contemporary writers capable of understanding their complexity, much less rendering them into fictional form, could be accommodated behind a very small table’.

In short, there was no Dickens for the twenty-first century to bring to life the stunted aspirations and stultifying fears of the leveraged economy. Indebtedness became an everyday misery, quietly endured by stragglers the circus that had briefly enchanted, then left behind. You found them lamenting their folly and cursing the banks on radio phone-ins or in Internet chat rooms rather than on the Booker Prize shortlist or television schedules.

‘Being young, naive and overwhelmed with the opportunity of all this cash, I took up almost every offer that was thrown my way—much to my deepest regret,’ wrote a young woman from Liverpool on a BBC Net forum. ‘I see now that I was extremely stupid, yet the way the interest-free overdrafts and “don’t pay anything for 12 months” was sold to me, it was hard to resist. I finished university this year and I now have extreme amounts of debt. I let my overdrafts get overdrawn, and the charges have amounted to thousands. At the same time, my credit card charges have amounted to hundreds. And these are just a small example of the problem I am in. I am 22 and have been advised to declare bankruptcy.’

Others told how they had lost their homes, or how they were trying and failing to repay hundreds of pounds a month while living on benefits. A woman from Southampton gave a little sketch of the giddy world of banking when she said, ‘I’m only 21 years old and already in more than £10,000 worth of debt. I even work for a bank! I just kept increasing my loans and overdrafts thinking that I could pay it back in the future, but now it has got to the point that I can’t afford to have a social life. I’m on anti-depressants now to help me with the stress. Anyone out there that is just turning 18 and can now get loans and credit cards—don’t! If you haven’t got it, don’t spend it!’

EVERY BUBBLE PRODUCES a self-serving ideology. In 1999, financial analysts who proclaimed that the Net was creating a ‘New Economy’ pumped up dotcom shares. The boom that led to the Great Crash of 1929 was cheered on by economists who reassured investors that they were living in a ‘New Era’ dominated by highly trained and ruthlessly efficient ‘scientific managers’.

Equally fanciful dreams preceded the Great Crash of 2008. The most popular came from the American journalist James Surowiecki. In his 2004 The Wisdom of Crowds he claimed that diverse groups of individuals independently reaching their own decisions were more likely to find the right answers than experts, however well qualified. His democratic argument fitted neatly with the explosion of user-generated sites on the Internet, which had the potential to allow anyone to publish their thoughts on anything to an audience, which in theory extended to everyone in the world with access to a computer. All users were equal on the Net. Politicians, academics, journalists and specialists could no longer monopolise media news, as they had done in the days when a few publishers controlled the outlets. Everyman could be his own expert. Everywoman could be her own publisher. Jimmy Wales echoed Surowiecki when he declared that he had no more faith in the knowledge of a Harvard professor than in a high-school kid. On Wales’s Wikipedia site both the professor and the kid had the same intellectual authority, which, as the critic of techno-utopianism, Andrew Keen, pointed out, was ‘really the same as saying that neither had any authority at all’. Wales was also a true believer in the free market and a disciple of the ultra-capitalist Ayn Rand. The theory of wise crowds not only chimed with the flightiness of the Web 2.0 boosters, but also provided ideological support to the bubble market.

Surowiecki recognised that bubbles posed problems for his belief in collective wisdom—as did, he might have added, mass panics, teen crazes, religious hysterias, superstitious fears, tribal loyalties and outbreaks of belligerent nationalism—and tried to adjust his theory. His refined version boiled down to ‘crowds are wise—except when they’re not’.

Unsurprisingly, no one took any notice. Popular capitalism was the spirit of the age. Politicians and central bankers bowed before the market’s judgements. If tens of millions of people independently decided to take out loans, if tens of thousands of bank managers and mortgage brokers calculated that there was no risk in lending to them, and if thousands of dealers in finance houses packaged their debts and offered them as lucrative mortgage-backed securities, what right did they have to gainsay them?

The market was not mad. It was the wisdom of the masses in motion.

Believers is wise crowds and rational investors forgot that the human race can be pushed into speculative frenzies by emotions that are far from wise: the herd instinct, the appeal of acquisitiveness, the fear of missing out, the envious desire to keep up with friends and neighbours and the seductive temptation to gamble and win.

I learned how far crowd psychology had taken over in 2007 when I talked to Capital Economics, a hitherto sceptical London consultancy. In 2005, it had warned that house prices were unsustainable. First-time buyers could no longer afford to buy. Developers were throwing up blocks of flimsy flats on brownfield sites, not as homes for people to live in but as casino chips for investors who had taken out 1 million buy-to-let mortgages. The folly had to stop, Capital Economics declared. But the folly did not stop.

Instead of reaching the conclusion that the fall would be all the harder when it came, they recanted. When I asked whether prices could keep on rising, the reply came, ‘You’re going to think I’m utterly insane, but they can.’ Immigrants were still heading for a booming Britain. In the City, 4000 bankers and traders had received bonuses of £1 million or more. The law of supply and demand, low interest rates and the City’s special place in the global market guaranteed a prosperous future. The profits from property had overwhelmed the prophets of doom.

In June 2007, Professor Stephen Nickell, the chairman of the government’s Housing and Planning Advice Unit, predicted that the price of the average home would rise to £300,000 and that the average first-time buyer would have to obtain a mortgage ten times the size of their annual income.

Three months later, Northern Rock crashed and panicking depositors queued outside a British bank for the first time since Overend, Gurney & Company went under in 1866.

Those rogue economists, who have never believed that crowds are wise, have a name for the emotion that surges through investors as the market reaches its zenith: euphoria. It builds gradually. After a long period without a recession, speculation grows. Belief in free markets or corruption stops politicians intervening while the damage can be contained. Allegedly elitist financial experts do not stand aloof from the crowd, as Wales and Surowiecki imagined, but prove their democratic credentials by joining the mob and egging it on. Finally, as everyone who can piles in to take a share of leveraged profits, swindles proliferate, eye-watering debts become normal and, in the words of the economic historian Edward Chancellor, a carnival atmosphere descends. ‘The spirit of speculation is anarchic, irreverent and anti-hierarchical,’ he wrote in 1999.

It loves freedom, detests cant and abhors restrictions. From the tulip colleges of the 17th century through to the Internet investment clubs of the late 20th century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its many inequalities of wealth. Throughout its many manifestations the speculative mania has always been, and remains to this day, the Carnival of Capitalism, a Feast of Fools.

No one who saw the roaring boys of the City in the early twenty-first century, or watched the gurgling presenters of the ‘property porn’ shows, could doubt him.*

On this reading, all bubble markets are the same. The bust of 2008 was no different to the South Sea Bubble of 1720, which ruined early Georgian London, or the railway share mania of 1845, or the Great Crash of 1929, or the slower unwinding of the Japanese market in the nineties. ‘Progress is cumulative in science, but cyclical in finance,’ wrote the economic analyst James Grant in 1993, and there is a strong temptation to respond to the crash of our day with banalities about there being nothing new under the sun.

The politicians, the speculators, the bankers and the crowds of mad investors did not see the crash coming, but then their predecessors did not realise that the South Sea Bubble was about to burst. What’s new?

Not much sounds a fair answer, but it pays no attention to the nagging difference. This time around, a left-wing government ignored a monstrous bubble.

Its behaviour needs explaining because, contrary to cliché, 2007 saw something new under the sun.

LOOKING BACK AT the ruins, I can see faults in my writings from the bubble years. I have never been interested in consumerism, never seen shopping as anything other than a chore, and I suppose I underestimated the happiness the boom brought to many. In theory, I know that distress brings no good and poverty inspires no nobility. In practice, I find misery interesting and contentment dull. Like most writers, I instinctively believe Tolstoy’s assertion that while ‘all happy families are alike; each unhappy family is unhappy in its own way’—and do not want to remind myself that happiness comes in many forms while desolation in its final stages is grindingly uniform.

Therefore, and in fairness, I ought to balance what follows by acknowledging that the period this book covers was not all bad. The British were richer than they had ever been. Between 2003 and 2007, national income per head grew faster in Britain than in any other developed country. The formerly privileged complained of downward mobility, but the debt bubble, like every other bubble, created upward mobility and allowed City boys from humble homes to leap the fences of old England. I also accept that if money could not buy the British happiness, it at least allowed them to be miserable in greater comfort. We lived longer and enjoyed greater access to education and health-care. We were free to read what we wanted, sleep with whom we wanted, think what we wanted and live where we wanted and how we wanted. Our Labour leaders had reason to be proud. They could walk into any town, see new schools and surgeries, and think ‘we built those’. They did not damn the flood of wealth in London, but used it to revitalise Britain. The boom brought the best of modern urban architecture to once forlorn provincial cities. Manchester was a grim northern town when I grew up there in the seventies. Birmingham had had the life beaten out of it by the collapse of manufacturing industry when I took my first job there in the eighties. The Labour years transformed both for the better.

I make no further apologies for the tone of this book, however. Writing in 1931, Frederick Allen Lewis rightly feared that people would one day think of the Jazz Age of the twenties as the good old days and ‘would forget, perhaps, the frustrated hopes that followed the [First World] War, the aching disillusionment of the hard-boiled era, its oily scandals, its spiritual paralysis, the harshness of its gaiety’.

I hope that no one will forget that the years before 2008 had oily scandals and aching disillusionments of their own. Even before the crash, it was obvious to me that for all its benefits globalisation was battering Britain. As the nation-state disintegrated, we did not know what to call ourselves, ‘British’, ‘English’, ‘Scots’, ‘Welsh’.* The immigrants brought in by the boom changed the country, and neither the right nor the left understood how to think clearly about coping with the concomitant social tensions. Increased wealth and better health created citizens who seemed to believe that death was optional and the human condition escapable. They made impossibly authoritarian demands for the state to follow the precautionary principle and guarantee that they would never suffer accidents or harm.

Above all else towered the misery brought by asset-price inflation, as housing, one of life’s necessities, became nonsensically dear.

London was as close to being the financial centre of globalisation as anywhere in the world could claim to be. With the City accounting for a fifth of the British economy, the political left cut a deal.

I don’t want to accuse it of ‘selling out’. However shamelessly Tony Blair and Peter Mandelson welcomed the super-rich into Downing Street and accepted invitations to their Mediterranean villas in return, however cravenly Gordon Brown capitulated to demands from billionaires to provide them with privileges, the paradox of the 1997 Labour government was that it was at once a left-and a right-wing administration. It wanted a huge public works programme. It aimed to redistribute enormous amounts of wealth. To achieve both these desirable goals, it made a bargain with the markets.

All right, the political left said, we will accept extremes of wealth we once denounced as obscene. We will embrace your speculators and not drive them overseas with tough regulation. If the authorities overseeing the Wall Street markets or the Frankfurt bourse become too inquisitive, capital will always be able to find a sanctuary from scrutiny here. Nor will we restrict the operations of financial services, even though they are entrapping our supporters in levels of debt that the puritan in us finds frightening. We will concede all this, if in return you will give us the tax revenues which will allow us to the build the new schools and hospitals, and increase the incomes of our struggling constituents.

For all its virtuous intentions, the political left was living off the proceeds of loose financial morals. Prostituting itself, to be blunt.

The brightest and the best graduates went to work for City firms. By 2007, politicians of all colours regarded them as their intellectual superiors, modern alchemists who could conjure gold out of lines of flickering figures on a screen. Ken Livingstone, the allegedly left-wing mayor of London, genuflected before the cardinals of the money market with as much reverence as any Tory. If he had had his way, London would have become a Shanghai-on-Thames, its skyline punctured by gleaming towers for the bankers and dealers he assumed would always be landing at Heathrow.

The anti-capitalist movement had nothing interesting to say about high finance, but spitefully concentrated on opposing free trade, the one neoliberal policy that raised the living standards of the world’s poor. Everyone else was lulled into acquiescence by the success of globalisation. Young radicals from Gordon Brown’s generation did not abandon socialism because they ‘sold out’, they abandoned it because they saw that socialist societies produced stagnant economies, along with some of the worst crimes in human history, while market economies not only worked but produced the revenues social democrats could use for leftish ends. The British economy had been growing since the collapse of the Soviet Union in the early nineties. Like so many others, Britain’s social democratic leaders came to take growth for granted and forgot that no one can abolish the business cycle.

In his March 2007 budget, Gordon Brown described a happy land of ‘rising employment and rising investment; continuing low inflation, and low interest and mortgage rates’. The ‘longest period of economic stability and sustained growth in our country’s history’ was marching on, bringing ‘prosperity and fairness for Britain’s families…We will never return to the old boom and bust!’

In the same month, the International Monetary Fund issued a prophetic warning. By encouraging the UK economy to become dependent on international financial markets, it said, Brown ran the risk of a global financial contagion infecting a country that was already drowning in debt and in no fit state to cope with hard times.

The government took no notice. As late as April 2008, Labour MPs fell about laughing when the Liberal Democrats presented a motion to the Commons warning of imminent disaster. ‘The Liberal Democrat motion has been much commented on, possibly because it reads like the storyboard for Apocalypse Now, or perhaps even Bleak House,’ guffawed Angela Eagle, a Treasury minister. ‘According to the motion, we are facing an “extreme bubble in the housing market” and the “risk of recession”, and we must “act to prevent mass home repossessions”. Fortunately, for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality. Now that we have had Apocalypse Now and Bleak House, I am going to talk about An Inconvenient Truth, which is that the economy is strong and stable.’

The spivvery of the City afflicted the political left as severely as its blind optimism. Early on in the Labour government, I had an argument with one of Robin Cook’s aides about a project I thought a waste of public money. I cannot remember the details but I cannot forget his incredulity at meeting an apparent leftist who worried about value for money for taxpayers. The left allowed its supporters to condemn businesses that exploited the vulnerable. In 2006, Farepak, a hamper company that collected monthly payments from humble families saving for a Christmas treat, collapsed. The left knew instinctively that it was wrong for its capitalists to run off with other people’s money. They did not need to have it explained to them. They felt it in their bones. When employers underpaid their workers, the left again had no trouble in condemning them. But when the state took taxes on pain of imprisonment and then threw them away, the left treated other people’s money as casually as a Lehman Brothers dealer. So accepting of profligacy and confident of future growth did Gordon Brown become, he saved nothing during the boom years to help Britain through a recession. When the crisis came, his country was naked before the storm.

And so in an unprecedented manner, and with not wholly bad intentions, the left in power went along with a lawless market, and only after it went down did it show the boldness of true social democrats by taking over much of the banking system. It left it too late because while the bubble lasted it did not want to think what would happen if the City fell apart. Failure was an unimaginable eventuality because, in truth, no one on the left or right had the faintest idea how else a country in which agriculture formed a tiny part of the economy and manufacturing industry had withered could make a living. The political left might have tightened the regulation of the banks and the City, but the financiers did not seem to be joking when they said that they would respond by emigrating and leaving the economy in the lurch. It might have given the Bank of England the authority to raise interest rates to stop the growth of debt and the rise in house price inflation, but the economic consequences would have seemed too severe to contemplate. By 2007, the only sectors of the economy that were booming were retail and leisure, funded by consumer debt, financial services, dedicated to getting consumers further into debt, housing, bought with yet more debt, and state spending, based on levels of government debt which made borrowers from Northern Rock seem like paragons of responsibility. If they brought down the debt economy, what else could they put in its place?

By the end, Labour politicians were boxed in. Even if they had realised the danger Britain was in—and there is no evidence that they did—the price of changing course would have struck them as unacceptably high. They couldn’t challenge the status quo, until the status quo changed and challenged them.

Politicians and pundits are already providing many reasons for England’s crash, and there is merit in blaming the Bush administration, Gordon Brown’s catastrophic complacency and global financial forces beyond any government’s control. Yet too few commentators could say why the British left’s recession looked like being worse than recessions in comparable developed countries.

The best answer is also the simplest: England crashed because England did not have a Plan B.

THE LIBERAL INTELLIGENTSIA that dominated Britain’s cultural life as completely as Labour politicians dominated its government, might have reminded the politicians of the need to stick to leftish principles. But, and here I come to the second theme of this book, liberal England’s dereliction of duty surpassed that of its political leaders. The roots of its recklessness are to be found in another unprecedented feature of the 2008 crash.

Previous stock market crises occurred in times of peace. The South Sea Bubble began four years after the end of England’s long war against Louis XIV’s France in 1715. The railway and the canal manias flourished in the Pax Britannica after Waterloo. The destruction of Wall Street shares in 1929 came a decade after the end of the First World War, while the Japanese bubble peaked once the cold war was over.

Peace breeds booms. Politicians grow lazy and no longer feel the need to stop speculation before it imperils the national interest. Their citizens, meanwhile, have nothing to distract them from getting and spending.

The crash of 2008 broke the pattern. Britain and America were at war in Afghanistan and Iraq, and had been for years. For if the chaos in the markets represented the end of the liberal economic dreams of the era of globalisation, a dark shift in world politics had dashed liberal political hopes long before.

When the Berlin Wall fell in 1989, it was possible to believe that Immanuel Kant’s dream of enlightened nations living in ‘perpetual peace’ was at last being realised. Liberalism in the form of democracy, open government, free markets, common security and respect for human rights seemed the best and only way for societies to grow and prosper. Francis Fukuyama proposed that history was over, and although his many critics mocked and misunderstood him, he was making what seemed an unanswerable argument. Certainly, if a gang of totalitarian fanatics in Afghanistan wanted to order their territory according to the barbaric principles of medieval religion, it could. Fukuyama was not saying that every society had to be liberal; simply that if societies wished to be successful, liberalism was the only model on offer.

Twenty years on, his confidence lay in tatters. The most rapidly advancing power was China, whose dictators combined repression with economic success. Individual dissidents protested, but there was little doubt that the majority of the Chinese went along with their rulers’ mixture of nationalism, capitalism and authoritarianism. Russia, which had seemed likely to become a normal nation, turned its back on the Europe of human rights conferences and limited government, and embraced autocracy. Liberal Russians protested, but again only optimists could doubt that most were happy with Putin’s plans to rebuild the empire of the tsars and commissars. Meanwhile radical Islam, the most psychopathically anti-liberal ideology since Nazism, was not confined to the mountains of Afghanistan, but swept the Muslim world. Although polite commentators maintained that only a ‘tiny minority’ of Muslims supported clerical fascism, it was embarrassingly obvious to honest reporters that a far wider section of the Muslim population was unwilling to oppose it.

The American strategic thinker Robert Kagan encapsulated the shift from the late twentieth to early twenty-first century by putting himself in the shoes of an aspiring dictator. In the nineties, a potential strongman would have thought autocracy a bad bet. Everyone believed that you could not combine dictatorship with economic growth, and if you did not have economic growth, your power as an autocrat would fade, leaving you at the mercy of your enemies. Twenty-years on, Kagan continued, well, the world was looking a much better place.

The Chinese and the Russians are demonstrating that economic growth and strong autocracy can coexist perfectly happily. Now in Russia’s case it’s mostly about oil, but it’s not entirely about oil. In China’s case, it’s not at all about oil. China clearly is an increasingly market economy; it’s an increasingly capitalist system but nevertheless with rigid political controls. And the bargain that’s being offered to both of these peoples is a very old bargain. It is the bargain that says, ‘you can live your life, you can have whatever private life you want, no one’s going to come and in and tell you what to read or how to think (within certain limits), you can make money, you can prosper…just keep your nose out of politics. And if you get your nose involved in politics, we’ll cut off your nose.’ If the money is flowing, I think that’s a bargain people will take for a very long time.

He might have added that Islamists and other apocalyptic sects did not even need a successful economy to hold the world in thrall. The growing availability of weapons of mass destruction meant that the twenty-first century would have to live with the nightmare of relatively small bands of psychopathic men obtaining and detonating armaments that had previously been the sole possession of superpowers.