State intervention makes a come back - can it save capitalism?

August 2021

By Noah Tucker

The announced reason for the British government’s nationalisation in July and August this year of Sheffield Forgemasters, to be followed by state investments into the firm of £400 million, is to “secure the supply of components for the MOD’s critical existing and future UK defence programmes.” [1] Nevertheless, the move, which is one of a series of major state interventionist measures by Britain’s Tory government, will save the jobs of 600 workers at the plant. Reports that The Free Market is Dead or that Neoliberalism is Dead, as pronounced by Facebook co-founder Chris Hughes in a Time Magazine article in April 2021 [2] and by former Obama White House official Jake Sullivan in a February 2020 article in Foreign Policy [3] are without doubt highly exaggerated. However, there is a certain change of direction taking place. Sullivan has subsequently been appointed by Joe Biden as the USA’s National Security Advisor.

In Britain the industrial policy initiatives of Boris Johnson’s Conservative government have included the state organisation and funding of Covid vaccine manufacture, the proposed reassertion of unified state control of the railway system (made possible by Brexit, as EU legislation mandates a split between control of the track and operation of the trains), the blocking of the sale of silicon chip design company Arm Holdings to the US company Nvidia, and even the part-nationalisation of a space satellite company. As BBC Technology Correspondent Rory Cellan Jones noted: “[T]he vital importance of the semiconductor industry has become clear in recent months, with chips at the centre of a US-China trade war and chip shortages halting production at car plants. There has also been a major shift in the UK's attitude towards industrial policy. After three decades of a laissez-faire approach from both Conservative and Labour governments there's a new willingness to intervene - witness the move to spend taxpayers' money on a controlling stake in the failing satellite business OneWeb.” [4]


Such a shift, even though shrouded in justifications of ‘national security’, would have been inconceivable during the administrations of previous Tory prime ministers Thatcher, Major or Cameron, or under the New Labour government of Tony Blair - who was in his time the most convincing exponent of the creed of economic laissez-faire. Blair’s raison d’etre for deregulation and privatisation was that unleashing the dynamism of the market would create wealth which the government could then use to expand services such as health and education, services which would supposedly be improved not merely by the extra money invested, but by themselves being marketised and privatised. For a while this did seem to work. But Tony Blair’s rhetoric on the question of the state and the economy now appears archaic. Take for example his penultimate speech as leader to the Labour Party conference, where he gushed about the liberalised market, scolded those who saw a need for the government to protect workers or to manage provision of services, and demanded the breaking down of the ‘monolith’ of the NHS. This was less than two years before he would hand over the reins of office to his unfortunate successor Gordon Brown, just as the gigantic financial bubble of the deregulated economy was showing signs of bursting. Blair proclaimed in September 2005:

“In the era of rapid globalisation, there is no mystery about what works: an open, liberal economy, prepared constantly to change to remain competitive…The temptation is to use government to try to protect ourselves against the onslaught of globalisation by shutting it out - to think we protect a workforce by regulation, a company by government subsidy, an industry by tariffs. It doesn't work today.” He added: “The truth is, command public services today are no more acceptable than a command economy… the NHS reforms, to break down the old monolith, bring in new providers, allow patients choice, must continue.” Blair even conjured a universe in which the ‘shrinking of the state’ transfers power to ‘people’ rather than big corporations: “Today is not the era of the big state, but a strategic one: empowering, enabling, putting decision making in the hands of people, not government.” [5]

Within months of Tony Blair’s resignation in late June 2007, it was becoming clear that such rhetoric was as illusory as the supposed value of a sub-prime mortgage collateralised debt obligation.


Although the lessons of the crisis of the financial markets and the ‘real’ economy in the late 2000s were subsequently inverted (temporarily) into an indictment of public spending and a justification for austerity, nevertheless it was that crash, followed by the increasingly evident failures of privatised public services, which fatally damaged the credibility of liberal market dogma. But it took until 2017, with the first of Jeremy Corbyn’s Labour general election manifestos, for the public mood to crystallise around a political programme to roll back neoliberalism. The Tory response was to abandon the rhetoric of austerity and the free market, instead promoting the necessity of regulation and promising to uphold workers’ rights and protections. As The Guardian reported on the Conservative manifesto issued two weeks later:

“Theresa May has promised to ditch right-wing, free-market dogma and return to “true Conservatism”, and noted that: “The manifesto drew a line under the legacy of David Cameron and George Osborne with promises for more state involvement in the economy …Its most striking passage appeared to be a rejection of laissez-faire capitalism: ‘We do not believe in untrammeled free markets. We reject the cult of selfish individualism. We abhor social division, injustice, unfairness and inequality.’” [6]

Thus despite being besieged and eventually defeated, the Corbyn leadership of the Labour Party opened the door for a significant change of policy direction by the British state. Irrespective of the crass comments lauding greed and capitalism, the crony capitalist contracts, and the struggle within the cabinet between Covid herd immunity and the longer term stability of British capitalism, the Boris Johnson administration has been ideologically freed up to take major non-market economic initiatives where they suit its economic and political interests.

However, the main inducements for that shift away from dogmatic neoliberal globalisation are themselves global. In the USA, alongside the several trillions of dollars of federal spending proposed by the Biden presidency for economic stimulus and infrastructure, including on roads, railways, the power supply and expansion of broadband access, $250 billion of government investment has already been agreed, via the US Innovation and Competition Act, for semiconductor production, scientific research, development of artificial intelligence, and space exploration. The aim of the Act is, as remarked in a CNBC report, “to ensure the U.S. remains competitive with China as one of the globe’s technological powerhouses” [7]. Most Republican senators also accept that the capitalist market is not going to achieve that aim without massive state involvement and direction, hence the bill was passed with bipartisan support.

Even the EU, while still sticking rigidly to its (anti) state aid regime, which blocks most economic subsidies and state investment, is currently tabling legislation to restrict opportunities for companies based in non-EU countries to invest or acquire contracts within the Single Market, on the basis that such companies could be in receipt of subsidies from their own governments, and thus ‘distort the market’. As Euronews reported: “The [European] Commission is determined to maintain the bloc's reputation of open space for business but, as non-Western countries grow and increase their purchasing power, it is wary that more and more EU firms will end up falling in the hands of non-EU owners…So-called ‘traditional’ investors, such as the United States, Switzerland, Norway, Canada, Australia and Japan, still dominate the acquisition market in the European Union, although in recent years, new investors like China and India have deepened their reach…‘While state-owned companies represent only a small proportion of foreign acquisitions, their share in the number of acquisitions and their assets have grown rapidly over the latest years. Russia, China and the United Arab Emirates stand out in this respect,’ the Commission said in a 2019 paper.” [8]

Although the new EU legislation has the appearance of being aimed at China, Russia and other ‘non traditional’ investors, it remains to be seen whether it will be used against US firms which will have benefited from the hundreds of billions of state subsidies which will be disbursed under the Biden presidency.


While the coronavirus pandemic and the need to avoid a catastrophic economic collapse has triggered an intensification of state economic intervention, the recent willingness on the part of Western policymakers to consider measures violating the ideological rules of market liberalism must be seen in the context of two main long term factors.

One is the rise of China. While the People’s Republic does not pose the same threat to world capitalism as the USSR and the communist movement did in the mid to late 20th Century, it would be no exaggeration to note that the prospective loss of the USA’s (currently still overwhelming) global supremacy, combined with the ‘failure’ of China to adopt a Western pluralist model of capitalist democracy, or to accept a subordinate role to the US on international issues, or even to move to a fully marketised capitalist economic model has induced a state of strategic panic among Western policymakers. (See ‘China’s Rise and how the USA got it Wrong’ in Socialist Correspondent issue 40 [9])

Indeed, despite the proliferation of billionaires and the big increase in inequality which took place since the onset of market reforms in the 1980s, there has been a reassertion in China of both central economic planning and of the place of state-owned enterprises (SOEs) in the commanding heights of the economy. Thus the rise of the China as a global economic player has had a result which was not predicted by Western strategists: the emergence of Chinese SOEs as a significant proportion of the world’s largest firms. The Fortune Global 500 (a list of the world’s biggest companies) currently includes 117 enterprises based in the People’s Republic of China (risen from 47 in 2010). 91 of the top 117 Chinese firms are state-owned, and three of the world’s five largest firms are Chinese SOEs. [10] The USA has 121 companies in the Fortune Global 500 (none of them state-owned), down from 141 in 2010. Whatever the alleged drawbacks of state ownership and control, they do not appear to be holding back the advance of these Chinese companies.

The other big factor is the evident long term failure of the liberalised market economy to deliver on its own terms. Although still able to create bubbles and crises, the dynamism and productivity which are supposed to be hallmarks of the capitalist market have been remarkably absent in recent decades. Even before the impact of the mismanaged pandemic, GDP and productivity were in the doldrums of long term stagnation in the developed capitalist economies. In the countries of the Euro area for example, according to a research working paper for the Banque de France, GDP growth averaged 1.09% per year from 2005 to 2019, and productivity per hour worked increased at a mere 0.72% annually, continuing an ongoing decline since the so called economic golden age of the end of World War 2 (WW2) to the mid-1970s.

Even more worrying for adherents of macroeconomics, total factor productivity (regarded as a measure of the efficiency by which inputs, i.e. capital and labour, are utilised) rose by only 0.3% per year from 2005 to 2019, less than half the rate of its increase in the previous period, and a striking fall since the years 1960 to 1975, when it had averaged 3.28%. The authors of the Banque de France research paper remark that, despite the rise of Information and Communication Technology, digital technologies and the use of robotics:  “One paradox has appeared over the last decades: in the developed countries, and whatever their individual development level, we observe at the same time a continuous productivity slowdown…This paradox has not yet received any consensual explanation.”[11] But there is an obvious explanation - that the liberalised capitalist economy, contrary to the predictions of the free market gurus, has merely reverted to its usual lacklustre performance in terms of productivity.

How are the rich capitalist countries to deal with this debacle? In his 2020 Foreign Policy article, which was co-authored with former US State Department and National Intelligence Council official Jennifer Harris, US National Security Advisor Jake Sullivan drew an explicit parallel with the Cold War against the USSR: “[T]he emerging great-power competition between the United States and China will ultimately turn on how effectively each country stewards its national economy and shapes the global economy…As in the past, the United States needs to move beyond the prevailing economic ideology of the past few decades (sometimes imperfectly termed neoliberalism) and rethink how the economy operates…The Cold War yielded a similar story. The U.S. government used a recipe advocated by the British economist John Maynard Keynes to grow its economy in the decades following World War II at a pace that the Soviet economy could not match. This involved a formula of stimulating consumer demand and industrial production through public investment and monetary policies favoring full employment. It happened because a range of voices…made the case that out-competing the Soviets called for discarding the laissez-faire economic philosophies that had dominated in the decades preceding the Great Depression.”

Noting that relying on private sector R&D, which is geared to short-term profits rather than significant breakthroughs, is a factor in the USA losing ground to China, Sullivan added portentously: “History is again knocking. The growing competition with China and shifts in the international political and economic order should provoke a similar instinct within the contemporary foreign-policy establishment. Today’s national security experts need to move beyond the prevailing neoliberal economic philosophy of the past 40 years.” [3]

Two caveats should be added to these assertions by Jake Sullivan and Jennifer Harris. Firstly, that until the late 1970s the economy of the USSR actually grew at a rate considerably faster than that of the US and Western Europe. However, it was developing from a much lower base, and the trade and technology sanctions imposed on it by the USA, along with the vastly improved performance of Western economies following their abandonment of laissez-faire, ensured that the Soviet Union was unable to fulfil Khrushchev’s call for it to catch up and surpass the West. Secondly, that in Western Europe and East Asia (i.e. in capitalist countries which were seen as more likely than the USA to be attracted to communism) the changes in economic policy and structure went far beyond the proposals made by John Maynard Keynes.


In the early cold war period a state intervention which had a huge and beneficial impact on the development of industry in Western Europe was carried out by the US Government. This was the Marshall Plan Technical Assistance Program, by which mass transfers of industrial technology from the USA were organised and subsidised. Thus rather than protecting their intellectual property rights, the US government arranged for American companies to hand over their knowhow of state-of-the-art technologies and production methods to West European firms. This enabled Western Europe narrow the gap in production technology between it and the USA. A similar programme was put in place for Japan from 1955 onwards. The role of West European states themselves in the development of their countries’ economies after WW2 is illustrated by the extent of public ownership. This ranged from Austria, where the entire ‘commanding heights’ of the productive economy were nationalised, to the German Federal Republic which had a lower proportion of state owned industry. In France and Britain, posts, telecoms, electricity, gas, coal and railways were all state monopolies; by the 1970s most of steel production and air travel were in state ownership, as was around half of the motor industry. In the UK, oil production and shipbuilding were also taken into public hands.

The authors of the WWWforEurope working paper Industrial Policies in Europe in Historical Perspective comment that: “In West Germany, officially, the self-regulating free market constituted the common economic order as well as the basis for all industrial policy in the Federal Republic. In fact, industrial policy in Germany was characterized by an ambivalent dual approach just as in most other Western European countries…[D]espite all official statements claiming the opposite, both federal authorities and authorities of the Länder intervened directly in markets and did exert a substantial influence on the development of the industrial sector not at least by means of an active support policy in response to economic crisis or slumps that became apparent since the late 1950s.” [12]

Notably, Volkswagen, Germany’s flagship car producer, was fully state owned (jointly between the federal government and the state of Lower Saxony) until it was part-privatised in 1960. Even then, a special law was passed, the Volkswagen Act, to maintain state control of decision making in the company and prevent any large private sector shareholder gaining control. (In 2007, the EU Court of Justice upheld an application by the European Commission to have the Volkswagen Act ruled illegal, on the grounds that the law contravened the principle of the free movement of capital.)

Industrial subsidies were an important feature in all the main West European post-WW2 economies. These should really be understood as a reallocation of revenue from more profitable firms, received via corporation tax (which was levied at much higher rates than now prevail, for example 56% of profits in the case of West Germany) to sectors which were less profitable, but nevertheless considered to be important. These subsidies were provided alongside substantial state spending on industrial research and development. According to the Industrial Policies in Europe working paper: “[F]or the years from 1966 to 1970, the financial public support for German industries accounted for an average rate of the federal budget of about 9 per cent, hence still being much lower compared to France or Great Britain. But in 1975, West Germany was spending almost the same proportion on financial industrial support as for example France.” The German mining and shipbuilding industries were heavily subsidised, with about 2.44 billion deutschmarks allocated to shipbuilding alone from 1966 to 1975. Significant state aid was also provided to other industries including textiles and clothing, food production, machine engineering, the chemical industry, electrical engineering, the iron and steel industry, and aircraft construction and aeronautics.

In Britain and France, the post-WW2 governments pursued active industrial policies which included promotion of mergers between firms to increase efficiency by means of economies of scale. State sponsored mergers took place in a range of UK industries including motors, electronics, textiles, shipbuilding and aircraft. At the time, these West European economies were referred to as mixed economies, implying a mixture between elements of a capitalist market economy and a socialist planned economy. Where it operated, that model produced results which have not been seen before or since.  West European GDP growth per capita, which had hovered around 1% between 1870 and 1950, increased to an average of over 3.6% in the 1950-73 period, before falling back to around 1.8% from 1973 to 2000 [13]. As noted above, it is now running at below 1%.

There were also other major differences with what came before or since, a key one being that, in this state-led, ‘mixed-economy’ capitalism, the rises in productivity were translated into big improvements in living conditions and incomes for the majority of people, rather than finding their way only into corporate profits, asset price rises, and ballooning wealth for a tiny minority. Because cut-throat competition was restricted, it was easier for the capitalists to accede to working class struggles and demands for better housing, health, pensions and other benefits. Very low levels of unemployment and high levels of trade union organisation led to increased wages and further expectations of continual improvements in social provision. In Western Europe, Japan and even in the USA, the gap between the rich and the poor narrowed. These advances were made despite the European capitalist powers being shorn of their Third World colonies in this period.

During the Cold War, this was hugely to the political benefit of the capitalist powers in their all-important fight against communism.  By the 1960s and ‘70s, it was becoming much more difficult for communists in the West to argue that the workers had nothing to lose but their chains. The Japanese, French, Italian and Spanish Communist Parties, while still enjoying huge support among the working class, were abandoning their alignment with the USSR, and had replaced their advocacy of the revolutionary overthrow of capitalism with programmes of gradual reforms in the direction of socialism. Though still a very real problem in the Third World, the sharp edge of the threat of revolutionary overthrow of the system in the advanced capitalist countries was blunted. Under the burden of rising military expenditure, and held back by the US-imposed CoCom sanctions which restricted imports of technology, the previously very rapidly growing Soviet economy began to slow down, making the enemy less fearsome.

But that stunning success of this post-WW2 Western ‘golden age’ carried with it very significant costs and increasing dangers. Much of the increased prosperity of the masses was accompanied by high progressive taxation on the very rich and a relative reduction in business profits – the real raison d’etre of the capitalist system. Increasing trade union power, and with it the struggles for further rises in wages and social provision, coupled with demands for further nationalisations and more state planning, were hard to oppose within the framework of the social-democratic ‘mixed economy’. Internationally, Third World countries were combining to improve their terms of trade with the West by collectively increasing commodity prices, and within the advanced capitalist economies, the relative positions of the USA and Britain were slipping against continental Western Europe and Japan.


So the advent of Reagan and Thatcher, and the pro-market counter-revolution which they instigated, had nothing to do with increasing overall growth and prosperity. It had a lot to do with closing off the ideological and practical possibilities for left-reformist encroachments towards socialism. And it had much to do with placing corporate profits and the enrichment of the wealthy back at the centre of economic and political priorities. And now, four decades later, we re-enter a world where Western strategists worry that the supremacy of US capitalism and its rich country allies will be challenged. For the very reason which led to the abandonment of the post-WW2 mixed economy, the measures proposed in response by even the most perceptive of these strategists, such as Jake Sullivan, and for all the new trillions of stimulus and subsidy in the USA, are merely a faint echo of the major structural changes made by the West in the early Cold War period. Even those measures come with dangers to capitalism, of which the working class movement should take full advantage. But so far they are much too little and, very possibly, they will also be too late.
















Sheffield Forgemasters photo by St BC

Volkswagen Combi photo by Jeremy

Because cut-throat competition was restricted, it was easier for capitalists to accede to working class struggles and demands for better housing, pensions and other benefits.