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David CoatesThe UK: Less a liberal market economy, more a post-imperial one

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The UK: Less a liberal market economy, more a post-imperial one

David CoatesWake Forest University, USA

AbstractThis article adds a new element to the growing critique of the original varieties of capitalism (VoC) distinction between liberal and coordinated market capitalisms by questioning the usefulness of the liberal market economy (LME) category itself. It demonstrates that many of the distinguishing features of the LME category are in the US and UK cases at least best explained by those economies external global and hegemonic role, rather than by their internal institutional complementarities. Imperialism holds the key to liberalism a key demonstrated here by a detailed examination of the UK case. The lessons for the study of comparative capitalisms are major: a total setting aside of the LME/CME distinction, and a return to the building of a global understanding of capitalism which is more than the sum of its individual parts. In order to understand LMEs, you need to understand imperialism; and to understand imperialism, you have to engage again with a revitalised Marxism.

KeywordsVarieties of capitalism, liberal market economies, imperialism, gentlemanly capitalism, liberal militarism

IntroductionIt is conventional in much of the comparative capitalisms (CC) literature to treat the US and the UK economies as examples of one particular capitalist model, to be contrasted with one or more other models, which are invariably treated as socially superior but economically suspect. Sometimes the typology is that of liberal market economies (LMEs) against coordinated market economies (CMEs). Sometimes, it is Anglo-Saxon

Corresponding author:David Coates, Wake Forest University, USA. Email: [email protected]

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172 Capital & Class 38(1)

capitalism against Rhineland capitalism. Sometimes it is liberal welfare states against conservative and social-democratic welfare states; but regardless of the specific categori-sation, there is a tendency in the relevant literatures to group the USA and the UK together. The argument here is that putting them together obscures more than it illumi-nates; and it does so precisely because the similarities of the two economies are rooted in the one thing that dominant typologies in CC studies systematically fail to emphasise: namely, the institutional consequences of past and present imperialisms.

The limits of LME as a categoryPrime responsibility for linking the US and UK together as LMEs lies with Peter Hall and David Soskice (2001: 19). Though their predominant concern was visibly with the defence of CMEs, in treating both the US and UK as non-coordinated economies Hall and Soskice stressed the distance between government and business in both of them, the systemic weakness of organised labour when compared to more coordinated market economies, and the predominance of idea systems within the liberal model, privileging the right of managers to manage and of capital freely to move (see also Gallas, in this special issue, on the UK). The LME/CME distinction was always a politically charged one, largely functioning as a defence of European welfare capitalism against its neoliberal critics. But in conceding the viability of LMEs as well as CMEs, and by placing the US and UK economies firmly in the LME camp, Hall and Soskice inadvertently gave retro-spective reinforcement to the Reaganite enthusiasm for business deregulation and to the Thatcherite assertion that the UKs late-20th-century economic weaknesses had much to do with the partial nature of the constraints on private enterprise created by years of half-hearted social democracy. It was Hall and Soskice (2001: 57), after all, and not Margaret Thatcher, who insisted that because international liberalization enhances the exit options of firms in LMEs the balance of power is likely to tilt towards business. The result should be some weakening of organized labor and a substantial amount of deregu-lation, much as conventional views predict.

My general unease with the LME/CME distinction, and with the new institutionalist paradigm it helps sustain, has been laid out elsewhere (Coates 2002, 2005; see also my other paper in this special issue). What concerns me here is a more specific weakness in the basic typology: the relatively unexamined inadequacy of LME as a category of analy-sis in the original Hall and Soskice formulation. Applying the label liberal market econ-omy to either the USA or the UK brought with it three significant weaknesses on which it is valuable to dwell: the lack of fit between the model and the reality it labelled; the truncated and ultimately misleading view of institutional development and change it helped to sustain; and the systematic failure of the whole approach to place models of capitalism on some more systematically developed historical and contemporary global map (see also Bieling and Jessop in this special issue).

The lack of fitThe gap between model and reality is clearest in the case of the USA as a LME. When labelling it in that way, Hall and Soskice focused on financial systems and corporate


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governance, industrial relations, education and training, and inter-company relation-ships. That focus led them to ignore or downplay, among other things, the close working relationship between the Pentagon and the US engineering industry, between the oil industry and the Department of Energy, between large agribusinesses and the Agriculture Department, and between large pharmaceutical companies and federally funded basic research and Medicare/Medicaid spending. Missing so much of what is defining of US capitalism, the LME label simply played into the hands of conservatives keen to extol the virtues of what they choose to characterise as a free-market capitalism unburdened by extensive welfare rights or corporate cronyism. Sadly, in contemporary America, there is in fact far too much of the latter and far too little of the former. The contemporary US economy is probably more properly described as a classic example of crony capitalism, full as it is of interlocking corporate boards, mutually reinforcing top-salary compensa-tion committees, and revolving-door relationships between Washington and Wall Street and the categories of our scholarship ought not to prevent us from seeing that. The entirety of the US economy is not a free-market capitalism in any meaningful sense of that term, and nor for that matter is the UK economy: a strong reason why dispensing with the LME category as a tool of comparative analysis is long overdue.

The truncated view of historyBut there is more. By restricting our view to just two types of capitalist economy, and by focusing discussion of institutional change within them predominantly on the post-1945 period, the varieties-of-capitalism approach pioneered by Hall and Soskice pulls us away from any recognition that the differential timing of industrial take-off remains vital to the contemporary condition of each major national economy, not least because of the institutional legacies left in place by the balance of pre-capitalist and capitalist social forces at the moment of industrialisation (see also Taylor in this special issue). There is more than path-dependency going on in the historical trajectories of national capital-isms, powerful as path-dependency undeniably is. There is also the legacy of the past, including the legacy of the pre-capitalist past; which is why it is not possible fully to understand the contemporary balance of class forces in each major economy, or the institutional mix each demonstrates, without tracing both back to the origins of each particular capitalist model.

The US and UK economies were both early industrialisers, relative to their German and Japanese contemporary competitors, and that still matters. In first-wave capitalisms those economies which began the process of capitalist industrialisation on a significant scale in the first half of the 19th century, notably Britain, the Netherlands, the USA and, more problematically, France industrialisation followed a relatively lengthy period of internal social differentiation which had already brought about significant shifts from pre-capitalist to capitalist modes of production in key economic sectors before factory production was introduced. In the first-wave capitalisms, it was the industrial middle class that set the pace, presiding over an industrialisation process whose tempo was, in retrospect, relatively slow, but whose reach and penetration into the economy was rela-tively thorough and dense from the very outset. Second-wave capitalisms the econo-mies of Germany, Russia and Japan were different. Their industrialisation on a



significant scale began in the latter part of the 19th century. Here, the impulse towards capitalist industrialisation arose less from the internal evolution of their societies than from external pressures working on their ruling groups from an emerging industrial capi-talist world. In these societies, the industrial middle class was weaker, and more depend-ent on pre-capitalist ruling groups; and indeed, it was the national-military needs of these autocratic regimes which often provided the key impetus to industrialisation as such. The state apparatus tended in consequence to preserve greater organisational roots in the landed aristocracy, while, paradoxically, generally being from the outset far more deeply involved in the orchestration of capital accumulation than were the liberal states of first-wave capitalism (Looker & Coates 1983: 99-101). Labelling one set of capital-isms as LMEs and the other as CMEs simply blocks any analytical capacity for letting these crucial historical differences back in; which is a second reason why the whole LME/CME distinction needs now to be set aside.

The lack of a global mapThere is more still. Stringing together a number of economies as LMEs also obscures what is arguably the most important difference between some of them and the rest, and does so by failing to place any of the national economies on any coherently specified global map. Globalisation is not a new feature of capitalism, and nor are all economies equally globally potent. What separates the UK and US economies from any others that scholars might be tempted to label as LMEs is the global role indeed the globally domi-nant role that the UK in the past played and the US currently plays in a system of internationally linked economies, a role that no other LME and certainly no CME has ever been in a position to play. The argument developed in the rest of this article turns centrally on this point: namely that the key features of both the US and UK economies singled out by Hall and Soskice as defining of their shared LME status including the weakness of business regulation in both, their propensity for Reagan-like conservative governments, the moderation of their labour movements, the weight of finance relative to manufacturing in their GDP, and their current inability to turn trade deficits into trade surpluses can and should be linked back to the UK and USs shared experience of early industrialisation and subsequent global economic dominance. The argument will also be that where the US and UK economies differ on such things as the greater politi-cal importance of deregulation in the USA, the greater public support for state welfare provision and even public ownership in the UK, the greater weight of finance and the lower degree of militarisation of core engineering industries in the UK these differences also need to be linked back, this time to the timing of global dominance, to the fact that the UK is now a post-imperial economy and society, while the US is (at most) simply poised to become one.

This is not to imply that German and Japanese capitalism are somehow better forms of capitalism because their imperialism failed (the weaknesses of so-called CMEs, though real, are beyond the scope of this paper). It is rather to argue that the UK and US econo-mies are best thought of, not as LMEs but as imperial capitalisms, at different stages on a standard imperial trajectory. And it is for that reason, and not because they are two versions of some timeless LME construct, that the two economies are both so similar and


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yet in critical ways now so different from one another. The general thesis underpinning the argument below is that imperial and post-imperial economies tend to have an unbal-anced relationship between manufacturing and finance, an overly militarised and increas-ingly uncompetitive manufacturing sector, a globally focused political class, and a more than usually moderate labour movement. The liberalism, in the LME-CME sense, of both the US and UK economies is a product of their imperialism, and not just a function of some accidental institutional complementarity into which they have inadvertently blundered. This cannot be understood without that recognition, or changed without a fundamental resetting of their economys entire global positioning.

Legacies of imperialism: The UK caseApplied to the contemporary UK, the argument is as follows.

Financial dominanceAll capitalist economies contain, to varying degrees between individual capitalisms and to varying degrees over time, different circuits of capital: merchant capital, agrarian capi-tal, industrial capital and financial capital. It is a feature of hegemonic economies that, as their hegemonic presence grows, so too does the weight of financial capital in the circuits that constitute them. That increasing weight is partly a product of the surpluses earned by global dominance then coming back to the hegemonic centre. It is partly a product of other economies coming to the centre to buy the technology that first established that hegemony, and needing to borrow local finance to do so; and it is partly because the export needs of a dominant economy initially require the outflow of local funds to lubri-cate its export sales. In hegemonic economies, this outflow of capital is initially func-tional to all its key capitalist strata merchants, farmers and industrialists as well as bankers but over time, it inevitably creates a gap between finance and industry that undermines the capacity of local financial institutions to help the hegemonic industrial base retool in order to meet the overseas competitive challenges its hegemony has helped call into existence. The retreat from circuits of industrial capital to those of finance capi-tal would appear endemic to all dominant capitalisms (Arrighi 1994). We certainly see it in the separation of financial and manufacturing capital in the contemporary USA (Coates 2011: 1426).

In the UK case, it is impossible fully to understand the weight of finance in the con-temporary economic formation without linking that weight back to the gap that opened up between UK-based finance and UK-based industry in the critical decades before 1914. The story has often been told of how initially Britains world monopoly position gave its industrial capitalists surpluses on which internally-financed long-term invest-ment could proceed apace; how that world monopoly position also gave sterling a par-ticular role in the 19th-century world economy (broadly similar to that of the dollar between 1944 and 1971); and how it attracted to London foreign borrowers keen to draw on those surpluses for their own industrial take-off. From the 1890s, in conse-quence, the English banking system found it more profitable to finance foreign trade and to handle portfolio investment abroad than to seek out domestic industrial demand for



long-term finance. This established both a distance between industrial and financial interests and an international focus for British banking practices that had no close con-temporary parallel elsewhere (Coates 1986: 26971; Coates 1994: 15362). It was in this manner that, as Andrew Gamble (2004: 37) rightly observed, far from being the pioneer of industrialism, Britain [became] an economy dominated by financiers and rentiers. Indeed, the word became may not actually be entirely appropriate here, because industrial capitalism in the UK, even at the height of its brief global dominance, was always the minor player always the bastard child of a capitalist social formation that was throughout predominantly commercial and financial in nature.

Manufacturing weaknessWhat that brief period of global manufacturing dominance then consolidated was what Cain and Hopkins (1993) have labelled as gentlemanly capitalism: the fusion of aristo-cratic and banking interests and the generation of a social culture that prioritised the making of money from money over the making of money from industrial enterprise.1 Though the UK is known as the home of the first industrial revolution, that primacy was possible only because of the prior development within the UK of both agrarian and mercantile capitalism; and there remains much academic controversy, particularly in Marxist academic circles, about exactly why, and exactly when, UK manufacturing industry fell victim to the dominance of financial interests in the circles surrounding the British state (cf. Ingham 1984, 1988; Lees 1986; Anderson 1987; Barrett Brown 1988; Callinicos 1988). Certainly by 1914, with over 40 percent of the total exported capital of the world raised on its financial markets, London was the leading centre for the issue of foreign loans and equities (Cassis 1990: 1), and a fully capitalist rentier class had come into existence. In consequence, the viability of London as an imperial centre had come to depend heavily on its role as a financial entrept rather than as a major manu-facturing centre with global leadership capacities.

That in its turn reminds us that the economic (and political) weakness of UK-based manufacturing industry is of long standing. The industrial-owning class was, from the outset of the UKs rise to brief global manufacturing dominance, heavily concentrated regionally away from London; and this class never replaced in political dominance more traditional elites whose income depended on banking and on land. The brief mid- Victorian period of unrivalled manufacturing supremacy left economic and political elites in the UK slow to respond to the challenges to dominance represented by the pre-1914 rise of German and American competition. There is plenty of evidence in the late-Victorian UK economic story of a retreat into imperial markets by established industries, and of a general institutional rigidity a slowness to make the move from proprietary capitalism to the managerial capitalism made necessary by the second industrial revolu-tion (Elbaum & Lazonick 1984). The long-term legacy of that a postwar flawed Fordism (Boyer 1996; Clark 2001) left the UK manufacturing sector vulnerable to German competition a second time after the brief hiatus caused by the devastation suf-fered by German industry during the Second World War; and by then, the UK state lacked both the capacity and the will for effective rapid economic modernisation. There can be no full explanation of the UK economys continuing trade deficit without some


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recognition of that particular lack, and the resulting failure to seize the opportunity of full-scale postwar industrial modernisation before the revival of Germany and Japanese competition.

Liberal militarismWhy this lack of capacity and will? In part, because of the long-term impact on UK manufacturing competitiveness of a century of liberal militarism. Globally hegemonic powers spend money on armaments and on war. The UK did (and still does) both. Paul Kennedy (1988: 243) noted this for the 1980s, and linked it to UK decline: Britain spends proportionately more (5.5 percent of GDP) than any other NATO partner except Greece. Globally hegemonic powers develop and sustain a large military-industrial com-plex. The UK still has that: a manufacturing sector disproportionately focused on (and holding global leadership capacities in) military rather than civilian industrial produc-tion. And globally hegemonic powers of the UK kind which industrialised prior to dominance with only the minimum of direct state economic leadership demonstrate a propensity for what David Edgerton (1991) properly called liberal militarism, namely a state propensity to regularly reconfigure military-focused manufacturing while deliberat-ing abstaining from similar leadership in the civilian sector.

It is true that, undefeated militarily but seriously weakened economically by the Second World War, successive UK governments did then periodically attempt state-led industrial modernisation; but always to very limited effect. For far too long for the com-petitive health of the UKs manufacturing sector, postwar UK governments attempted to retain the possessions and trappings of empire (Blank 1977). For far too long, both Labour and Conservative governments pursued an expensive strategy of keeping Britains military industries at the leading edge (Edgerton 1991: 1401). For far too long, a disproportionately large share of UK R&D, and associated scientists and engi-neers, remained focused on military, not civilian, production (Coates 1994: 193201; 2000: 198201) and this at the very time in which countries such as Japan were invest-ing in the long-term technological development of motor vehicles and other manufac-turing industries under strong state leadership (in Japans case, through MITI) (Fine & Harris 1985: 243). For far too long, that is (initially from 1985, and then again from 1995), the UK has remained a major net exporter of armaments but a net importer of manufactures (Edgerton 1991: 164; emphases added).

Therefore, by the time the UK political class did come to terms with the UKs dimin-ished global role, it had let slip key opportunities for civilian manufacturing modernisa-tion of the kind underway in the UKs main CME competitors, most notably Germany and Japan. The 20th-century UK state was one created far more for empire than for domestic industrial modernisation. Its strongest institutional nexus in the years before 1964 was that linking the Treasury to the Foreign Office and the Ministries of Supply/Defence. As the UKs global power waned, so did the standing of the Foreign Office replaced within the core institutional triangle by various iterations of a civilian industry ministry. To this day, the UK state remains a triangular structure linking the Treasury, the Ministry of Defence and the DTI (with the last perennially renamed and persistently denied real purpose and purchase). There is an important industry ministry story to be



told for post-war Britain, and sadly it remains (as we see once more with Vince Cable) largely a story of failure.2 And even today, after years of attempts of civilian modernisa-tion and a curtailing of the UK defense budget, the volume of arms sales still rose glob-ally during the recent economic downturn, and BAE still tops the list of the worlds largest weapons manufacturers.

The consolidation of an imperial mindsetIn the modern era, the legacies of empire are not simply institutional and economic; they are also cultural. In empire after empire, predominant patterns of thought emerge to reinforce the imperial project patterns which then help to undermine the very imperi-alism that first created them. In the UK case, there is a legitimate debate in the relevant historical literature about how deep and wide support was for the British Empire even at its height (Porter 2006: 227). It is possible to point to critics of imperialism throughout the 19th century free-trade liberal critics as the UK began to lay claim to more and more territory from the 1840s, and centre-left (social-democratic) critics at centurys end, when imperial jingoism peaked. But there is no escaping the fact that those critics remained a minority voice within the British political class prior to 1914 imperialism at its height was politically popular and that although the proportions shifted thereaf-ter, the Empire project left a generalised hubris among British politicians and state administrators which has still not entirely gone away.

The 1940s freeze of the international architecture of the postwar world order still encourages UK governments to punch above their weight, to see themselves as the USs ally in global policing, and to be at best reluctant Europeans for fear of losing their capacity for an independent role on the world stage. And that is true not just of post-war Conservative governments: Old Labour governments were equally prone to this global posturing, and so too was New Labour after 1997. In Tony Blairs defiant internationalism, and arguably even in Robin Cooks ethical foreign policy (doing good in the world), we see the same propensity to rearrange other peoples political furniture the same imperial hubris that once justified colonial expansion (Coates & Krieger 2004: 110-12). That hubris is there in the wider political culture, too we need only remember the popularity of the Thatcher invasion of the Falklands to realise that. Certainly as late as 1983, the UK electorate seemed to have no difficulty support-ing sovereignty claims on territory at the other end of the world, without in any way conceding similar sovereignty to others: imagine what the British popular reaction would have been, had the Argentinians laid claim to the Isle of Man for some equally specious historical reason.

Given the disproportionate involvement of residual aristocratic elements in the staff-ing of the Empire, and the general propensity of right-wing politics to emphasise issues of national (rather than class) interest, the persistence of an imperial hubris on the right of British politics is perhaps only to be expected. What is less clear is why centre-left par-ties in the UK should still be so vulnerable to the same thing. That vulnerability has a structural, as well as a personal and accidental, origin. Tony Blairs personality may explain some of the reason for British involvement in the 2003 invasion of Iraq, but it does not explain it all. The vulnerability of the British centre-left to the residue


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of imperial hubris lies in the manner in which the relatively slow transformation of the pre-capitalist UK economy into an industrial capitalist one, and the associated slowness (or in the USs case, the entire absence) of the destruction of a traditional peasantry, combined in the 19th century to moderate early working-class politics in both the UK and USA: moderate, that is, when compared to labour politics in later industrialisers like Germany, Russia and Japan (Coates 2010).

It was this moderation that was then reinforced by the bounty of empire, with the contradictions of early capitalist accumulation being softened in the core of the global system by being pushed to its edge. It is not just conservative politics in the UK (and the USA) that is anchored away to the right in the wake of empire. The whole centre of political gravity shifts that way, to the extent that entire labour movements are suborned into the imperial project. This incorporation is both extreme and unavoidably visible in the contemporary US case, but it is there too in the UK. British labourism was always less radical than mainstream European social democracy, and in large measure remains so. Remember with what ease Gordon Brown could articulate a discourse of Britishness, and with what speed the post-New Labour parliamentary leadership moved, in 2012, to condemn the renewed Argentinian claims on the Malvinas (Hoggart 2012).

Perhaps there is a general truth here: that ultimately the whole centre of gravity of UK (and indeed US) politics can only be explained in the imperial way. Certainly the ease with which UK (and later US) industrial capital established a powerful global presence without any direct and systematic state intervention for that purpose reinforced in conservative circles, once the economy became globally hegemonic, an equation of business interests with limited government at home and with market-opening policies abroad. It was in catch-up capitalisms, not in early capitalisms, that conservative political elites and supporting business leaders readily deployed state-led civilian industrial modernisation programmes. It was business and political elites in economies like Germany and France (and indeed, even in the USA after the Civil War, and Japan after the Second World War) that deployed protectionism against the pen-etration of their domestic markets by manufactured goods from stronger economies abroad. Political and industrial elites in early capitalisms, by comparison, became wed-ded to limited government and free-trade maxims during their period of global domi-nance when they needed open markets to keep their export factories in full production and then proved slow to shed that non-interventionist and free-trade mentality when their economic supremacy began to wane. We invariably see the persistence of a strong state, free market liberalism in imperial capitalisms which was functional to the begin-ning of their imperial story, but not to its end. What was it that Keynes (1936: 32) said: that Ricardos doctrine conquered England as completely as the Holy Inquisition conquered Spain!

Concluding remarksAt least two things follow from the UK case study that should be of interest to all scholars of comparative capitalisms. The first is that if it is their imperialism rather than their liberalism that places the US and UK economies in the LME category, then for the VoC literature to make further progress, it will be necessary for its adherents to



generate a typology of capitalisms that is capable of distinguishing imperial capitalisms from post-imperial capitalisms, and of differentiating capitalisms that have exercised global hegemony from those that have never done so. The second is that the new insti-tutionalism offers no particular way of explaining and understanding imperialism. Marxism does, of course, but as a paradigm of thought it has no monopoly of that understanding and explanation. So if the new institutionalists do not want to surren-der the field of comparative capitalisms simply to a revitalised Marxism, they then too need to engage with non-Marxist explanations of imperialism, in order to create a coherent map of the contemporary global economy on which then to place the path-dependent trajectory of particular national capitalisms. The temptation in scholarly research these days is always to go to the particular; but the particular can only be fully illuminated by its place in the whole. It is time for Big Picture thinking again in the study of comparative capitalisms. Marxisms intellectual moment has returned.

Endnotes1. It was Cain and Hopkinss view that gentlemanly capitalism then developed in ways which

emphasized the distance between land, high finance and the upper reaches of the service sec-tor on the one side, and mechanical industry on the other (1993: 15). There is much debate in the relevant literature on whether early 20th-century UK manufacturing suffered from a corresponding loss of the industrial spirit, or merely from a freezing of dominant mindsets in an increasingly inappropriate early Victorian classical liberalism (on this, arguing the latter, see Coates 2000: 13541).

2. It is possible to trace the DTI story back to the first Wilson government, with the initial clash between George Browns DEA and James Callaghans Treasury over the National Plan (won by Callaghan). Stronger attempts were then made to create a powerful civil-ian industry ministry by Anthony Wedgewood Benn: his 1960s DTI was dismantled by Heath. His second attempt at the Department of Industry was diminished by the lefts defeat in the EEC referendum in 1975, and was run down by Eric Varley. The DTI under Thatcher with Nicholas Ridley at the helm was at an all-time low, until resurrected as a power base for Michael Heseltine as deputy prime minister under Major. The DTI was emasculated again under New Labour by Gordon Browns resetting of the Treasury as the de facto industry ministry, and is now the scene of a party battle inside the current coalition between Vince Cable (wanting his ministry to be a genuine engine of manufac-turing growth) and a Treasury under the most austerity-prone Chancellor since Thatchers Geoffrey Howe. In these clashes to date the Heseltine period apart the Treasury has always won, leaving the civilian industry ministry subject to a regular change of title, functions, and status (Lee 1997: 10865).

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Author biographyDavid Coates holds the Worrell Chair in Anglo-American Studies in the Department of Politics and International Affairs at Wake Forest University, North Carolina, USA. He has written exten-sively on contemporary political economy, labour history and US and UK public policy. His writ-ings are at .


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