Blair’s New Labour and the power of the neoliberal

consensus

New Labour’s rise to power in 1997, achieved through a landslide victory -43.2% of the seats-

in the general elections then seemed to bode a change of course, or even a reversal, of the

Thatcher-Major’s years of neoliberal policies.

By neoliberalism, we mean the intellectual project, born in reaction to the postwar welfarist

and Keynesian consensus, which burgeoned within the academic world and whose

fundamental premise is “the superiority of individualized, market-based competition over

other modes of organization”1. Or as economists would say, the market is a more efficient

allocator of resources than the state.

As such, neoliberalism praises “the moral benefits of market society” and identifies “markets

as a necessary condition for freedom in other aspects of life”2. It is therefore a market-centric

centric vision of society: from this central premise stems an array of consistent political,

economic and social positions which together form the project of neoliberalism.

Even though Blair’s New Labour came to power on the basis of a social-democrat agenda

which included redistributive social policies and expansionary economic policies, it seems

that instead of reversing the neoliberal consensus of the time, New Labour under the

premiership of M. Blair actually maintained such consensus and mostly followed in the

footsteps of its predecessors.

This paper will thus analyze M. Blair’s New Labour policies from a neoliberal perspective.

In the first part, we will expose some policies, undertaken under Blair’s government, and

which signaled a clear anchoring of New Labour’s position to an existing neoliberal

paradigm.

In the second part, we will analyze those policies within the framework of the larger

neoliberal consensus and inquire into the reasons behind the hegemony of the neoliberal

doctrine.

1 Stephanie Lee Mudge, “What is Neoliberalism?”, p4

2 Ibid.

I. New Labour’s policies: a continuation of the

Thatcher-Major neoliberal policies

For some scholars, including Bob Jessop, New Labour “maintained the broad strategic line

embodied in the six planks of neoliberal economic strategy: namely: liberalization,

deregulation, privatization, re-commodification, internationalization, and reduced direct

taxes”3.

One can observe that the six policy points described by Jessop closely mirror the defining

points of the Washington consensus, to which we will come back later.

On the point of privatization, Blair’s New Labour pushed forward John Major’s PFI (Private

Finance Initiative) program, launched in 1992 to stimulate “the creation of consortia of

private firms that could raise private capital to finance and build public facilities”4.

Interestingly enough, this program had not been seen through by the Major government due to

strong opposition criticism and lack of confidence of investors and contractors. As such, its

real implementation was the work of Blair’s newly elected government which would use this

framework as the cornerstone of his program to develop and modernize the public sector. The

Private Finance Initiative was then seen as the best alternative to publicly-funded

infrastructure. By combining two complementary contractual solutions (agreements with

private contractors for the supply of goods and services, coupled with agreements with private

investors to supply the capital needed), it was supposed to reduce costs, involve the private

sector in the delivery of public goods and increase consumer choice: it was about modernizing

public services by infusing market mechanism into it. Private investors would then lease

infrastructure to the state, while private contractors would charge the state for providing the

public goods and services. Therefore, Blair’s PFI was one of the world’s most ambitious

programs of Public-Private Partnerships, a new way towards privatization. Or as Jessop would

put it, “a way of raising funds for public investment while keeping such borrowing off the

government’s balance sheet”5.

3 Bob Jessop, “New Labour or The Normalization of Neo-Liberalism?”, p2

4 Antonino Palumbo, “When Tony Met Maggie. The Terms of the Neo-Liberal Consensus in Britain”, p4

5 Bob Jessop, “New Labour or The Normalization of Neo-Liberalism?”, p2

On the point of liberalization and corporatization of state-owned sectors, we will focus on two

policy fields: education and health.

On education, it is indeed to our interest that tuition fees for undergraduate and postgraduate

students were introduced during New Labour’s government. In 1996, John Major had

commissioned a report, the Dearing Inquiry, on how to fund higher education in the next

twenty years. While in 1997, during its campaign, Labour had claimed it had no plans to

introduce tuition fees for universities, David Blunkett, New Labour’s education secretary

introduced tuition fees as well as replaced grants by income-based student loans the very

same year. It seemed then as an inevitable solution to an ever-increasing public cost of

education.

Also, it was Blair’s New Labour that designed and implemented the Academy Scheme,

targeting secondary schools. This new scheme, much like the charter school system in the

United States, established schools that were publicly financed but privately administered: it

was again a recognition that the market might be a better allocator of resources then the state,

notably because public administration was generally considered inefficient, according to the

then-popular “public choice” theory. Also, those Academies were to be significantly financed

by private and corporate sponsors, thus increasingly commodifying them: another instance of

market-mechanism infusion within the public sector.

On health, Blair’s New Labour pursued the NHS (National Health Service) reform started

under Thatcher. The reform’s aim was to introduce more competition within the provision of

healthcare-related services, by creating an “internal market”: the National Health Service

would not anymore provide care directly, but it would purchase it from trustees’ hospitals.

Alike the Academy scheme, the state would finance public services, but not administer their

delivery. As such, the NHS reform was the first major public reform to witness the intensive

use of Public Finance Initiative, as a way “to build and run new hospitals without any burden on

public monies. In return, the facilities were leased to health trusts, usually for periods between 25 and

35 years”6. This said, it has been much argued that those PFIs were paradoxically much more

expensive then publicly funded solutions would have been due to actually much higher costs than

were originally projected.7

6 Antonino Palumbo, “When Tony Met Maggie. The Terms of the Neo-Liberal Consensus in Britain”, p8

7 Ibid.

On the point of depoliticization, Blair’s New Labour created and empowered several

regulatory agencies. The creation or empowerment of such agencies meant the increasing

insulation from political influence of many policy fields by devolving governmental powers

and prerogatives to technocratic and expert institutions.

First, it was the independence of the Bank of England: following the neoliberal consensus,

and more precisely monetarist economists spearheaded by Milton Friedman, who unlike

keynesian economists, posit that money supply should not be an economic policy tool and that

the core mission of central banks is to fight inflation. As such, the independence of the Bank

of England marked a “move towards a liberal form of constitutionalism that [further

undermined] the decision-making power of representative institutions.”8 Or as Colin Hay puts

it, the operational independence of the Bank of England was the expression of the

“management of depoliticization”9.

Second, it was the creation of the FSA (Financial Services Authority), the regulatory agency

which would become responsible for most of the financial services-related regulations. This

devolution of regulatory power from a representative and elected government to an

independent and technocratic institution is especially significant in this case, due the

extremely important economic weight of the City and the financial sector in general in the UK

(financial and related services accounted for 14.5% of the GDP in 201210

). But it is precisely

this relative importance of the financial sector for the British economy which is assumed to

have prompted the insulation of the related regulation from political influence: by doing so,

the financial sector would be protected from consequences of political change and thus would

create a predictable business environment for foreign investors.

Finally, on the point of deregulation, the Royal Bank of Scotland LIBOR-rate fixing scandal

of 2008 has illustrated how many years of New Labour’s rule had in effect deregulated the

financial services industry. Indeed, LIBOR (the London Interbank Offered Rate) which is the

interest rate that banks use to lend or borrow from other banks, has been manipulated by

several banks notably the Royal Bank of Scotland. This interest rate was then not overseen

nor regulated by any authority – since 2012, the FSA has oversight on it- and following an

8 Ibid., p9

9 Colin Hay,“The normalizing role of rationalist assumptions in the institutional embedding of neoliberalism”, p5

10 TheCityUk, “Annual Reports and Accounts – 2012/13”

investigation on the scandal, Lord Turner, the Chairman of the FSA, said that the regulator

had been encouraged by New Labour to take a “light touch” on banks and exposed demands

by Tony Blair and Gordon Brown “that the financial district be allowed to remain

competitive”11

.

II. Blair’s New Labour, trapped in a neoliberal

consensus?

The policies carried by New Labour presented above interestingly fit very well in what has

been coined the “Washington consensus”. This consensus appeared in Washington in the

1990’s as an economic and political package promoted by many Washington-based

international economic development organizations (such as the World Bank and the IMF) was

aimed at promoting growth in Latin American countries. However, it soon transcended

geography and gradually became held as a political and economic neoliberal orthodoxy.

The Washington consensus and Williamson’s “Ten Points” included "the privatization of

public firms; the separation of regulatory authority from the executive branch—which

includes the creation of a politically independent central bank; the depoliticization of

economic regulation by insulating regulatory authorities from political influence and the

liberalization of the domestic and international economy by opening markets to multiple

service providers. To this, we should also add monetarism or, in other words, the

manipulation of the supply of money rather than demand management"12

.

As such, we cannot but observe that the policies exposed in the first part of this paper fit

perfectly into the Washington consensus and therefore into the neoliberal agenda.

Under Blair, market forces continued to extend within the public sector. First, through an

“increasing reliance [from the state] on public-private partnerships”13

as we have seen earlier.

But also, David Harvey tells us, as “businesses and corporations [collaborated] intimately

with state actors [and even acquired] a strong role in writing legislation, determining public

11

The Guardian, “Labour's lax regulation of the City contributed to RBS collapse”, December 12th

2011, available at http://www.theguardian.com/business/2011/dec/12/labour-regulations-city-rbs-collapse 12

Stephanie Lee Mudge, “What is Neoliberalism?”, p16-17 13

David Harvey, "A Brief History of Neoliberalism", p76

policies and setting regulatory frameworks (which are mainly advantageous to themselves)”14

.

Indeed, as Saint-Martin affirms, “since the 1980s policy-makers in parliamentary states have

increasingly use the practice of ‘contracting out’ (in the field of professional services) to

break the monopoly of the civil service on policy advice by using external consultants”15

Such a neoliberal revolution, infusing market forces in government, was embodied in the

“Reinventing Government” movement, whose aim was “to inject competition into service

delivery and create so-called ‘internal markets’ within the public sector”16

(like in the

aforementioned case of the NHS or the Academy scheme in the UK), establish a managerial

approach to government (with, for instance, “performance measurement”), emulate private

sector culture and values and finally increase contracting-out to external management

consultancies as “greater trust [was] placed in management consultants and other private

sector producer services firms than in the expertise, experience, and opinions of public sector

professionals"17

.

This “shift from government (state power on its own) to governance (a broader configuration

of state and key elements in civil society) has therefore been marked under neoliberalism”

Harvey insists18

.

This idea of this neoliberal framework (the Washington consensus, the infusion of market

forces in the public sector, the shift from government to governance) as a new consensus is

extremely important to us: in the same way that Conservatives had agreed to a so-called

“Atlee Settlement” of the postwar era, revolving around an expansionary welfare state, New

Labour had acknowledged the paradigm shift resulting from the newly established hegemony

of neoliberal doctrines following the New Right’s rise to power in the UK and the US, thus

adhering to what Colin Hay calls the “Thatcher Settlement”19

.

14

Ibid., p76-77 15

Denis Saint-Martin, "How the Reinventing Government Movement in Public Administration Was Exported from the U.S. to Other Countries", p19 16

Ibid., p24 17

Bob Jessop, “New Labour or The Normalization of Neo-Liberalism?”, p4 18

David Harvey, "A Brief History of Neoliberalism", p77 19

Colin Hay, "Labour's Thatcherite Revisionism: Playing the Politics of 'Catch-Up’”, p1

Why then, would someone his right mind ask, did New Labour accommodate to this

neoliberal consensus, instead of trying to alter it or even reverse it altogether?

Well, we believe that it is because neoliberalism holds much of its power as a definitional

intellectual project or meta-ideology, that is, an ideology which frames the very scope of what

should be political and what should not be: in other words, what should be debatable and what

should not be.

It has been argued by Colin Hay that because the Thatcherite agenda and values had been

internalized by the electorate after more than a decade of Conservative rule, New Labour’s

policy agenda had revolved around “preference-accommodation” rather than “preference-

shaping”20

: hence, they had conceived of the electorate as a static constraint to which policies

had to be oriented, rather than as a dynamic constraint whose preferences could be shaped,

which resulted in the continuation of previous Conservative policies. Neoliberalism’s

definitional power had thus not only shaped the preferences of voters, but it also had

cemented them.

In this perspective, we believe New Labour accepted it could not reverse past Conservative

policies and instead accommodated to them. Indeed, "following its election, New Labour was

content to administer much of Thatcherism’s legacy in regard to the neo-liberal economic

strategy, as if considering their effects to date as so many economically or politically

irreversible faits accomplis”21

. It therefore seems that it was accepted by New Labour that the

ground of political debate had shifted and that many policies undertaken by previous

Conservative governments were irreversible: hence supporting our hypothesis of

neoliberalism as a definitional intellectual project.

Blair’s emphasis on the “inevitability and desirability”22

of “neoliberal globalization” also

seems to support this hypothesis: by discarding any real alternative policies to neoliberal

policies from the political debate as “impossible” or “inferior”, neoliberalism shapes the very

contour of what is debatable and therefore self-reinforces. As such, the depoliticization of

many policy fields (i.e. monetary policy) in turn reinforces this definitional power of the

neoliberal doctrine.

20

Colin Hay, "Labour's Thatcherite Revisionism: Playing the Politics of 'Catch-Up’”, p2 21

Bob Jessop, “New Labour or The Normalization of Neo-Liberalism?”, p2 22

Ibid., p3

The power of the neoliberal doctrine to define the scope of the political debate is to be found

in its ability to present many of its constitutive claims as non-political truths “rooted in non-

political realms of struggle and collaboration. These realms might be understood as belonging

to the ‘cultural field’—that is, social spaces in which actors are engaged in struggles over

authoritative claims to truth and meaning: religion, art, literature and journalism, the ‘human’

sciences”23

. This ability to present its claims as truths, Mudge argues, comes from the fact that

neoliberalism was first and foremost an intellectual project which burgeoned in the academic

world.

This almost religious faith in neoliberal paradigms – or truths should we say- is perfectly

illustrated by the following quote from Williamson:

"It would be ridiculous to argue that as a matter of principle every conceivable point of view

should be represented by a mainstream political party. No one feels that political debate is

constrained because no party insists that the Earth is flat. [. . .] The universal convergence

seems to me to be in some sense the economic equivalent of these (hopefully) no-longer-

political issues. Until such economic good sense is generally accepted, then its promotion

must be a political priority. But the sooner it wins general acceptance and can be removed

from mainstream political debate, the better for all concerned. . . The superior economic

performance of countries that establish and maintain outward-oriented market economies

subject to macroeconomic discipline is essentially a positive question. The proof may not be

quite as conclusive as the proof that the Earth is not flat, but it is sufficiently well established

as to give sensible people better things to do with their time than to challenge its veracity."24

As such, Williamson questions the very raison d’être of alternative economic philosophies,

since those philosophies target and criticize economic rules that are now accepted as universal

truths: by comparing alternative economic philosophies to a party which would insist that the

Earth is flat, he confers to neoliberal policies a scientific authority. He also insists that the

promotion of those scientific truths should be a political priority in order to finalize the

establishment of the new paradigm.

23

Stephanie Lee Mudge, “What is Neoliberalism?”, p21 24

Stephanie Lee Mudge, “What is Neoliberalism?”, p18

Neoliberalism's definitional power therefore lies in its ability to define and delineate the

contours of the political debate: by conferring scientific authority to its own claims and

convincing the public of their truth, the neoliberal doctrine succeeds in restricting the political

debate by excluding many policy fields from it.

We believe such definitional power is the reason why Blair’s New Labour did not alter nor

reverse the neoliberal consensus when it came to power in the UK. Indeed, the political debate

had already been framed by nearly two decade of neoliberal rule so that Blair could only

accommodate to what was then perceived as the scope of political debate, restricted by

neoliberalism’s successful paradigm shift.

Conclusion

New Labour, even though it came to power on the basis of a more welfarist and expansionary

state than the Conservatives, was constrained in terms of policy-making by the pre-existing

neoliberal consensus, which had shifted the ground of the political debate and established

many of its prescriptions (such as liberalization or independence of the central bank) as

irremediable and scientific truths which even New Labour had to accept.

In that respect, Blair’s “Third Way” was an attempt to improve social welfare, while

remaining in the neoliberal framework.

Such is illustrated, for instance, by the Private Finance Initiative: it was then seen by New

Labour as the perfect way to produce public services and goods without however increasing

government debt - through the infusion of market mechanisms and the involvement of private

actors in the delivery of those services and goods.

This shift from government to governance was New Labour’s answer to increase social

welfare, not through state intervention but through the involvement of civil society: this will

to engage civil society as a new provider of welfare can be seen in the new societal concepts

developed at the time by New Labour such as “‘the stakeholding society’, ‘the giving

society’, ‘communitarianism’, ‘social citizenship’, ‘social capital’, ‘partnership’”25

.

25

Bob Jessop, “New Labour or The Normalization of Neo-Liberalism?”, p6

Blair’s “Third Way” addressed social polarization and exclusion but within the policy

perimeter deemed acceptable by the neoliberal consensus as “social inclusion [was] to be

secured primarily through labour market attachment and the economic regeneration of

marginalized communities; and individual, family, and child poverty [were] to be alleviated

mainly by a series of ‘stealthy’ (rather than proudly proclaimed) redistributive measures that

ideally involve redirecting revenues within what would still remain rigid fisco-financial

parameters"26

.

New Labour was therefore trapped between an electoral commitment to social welfare on the

one hand and its adhesion to the neoliberal consensus on the other, a trap that is still today at

play in most social-democratic parties of western liberal democracies.

26

Ibid., p3