Liz Truss is a morbid symptom of the long crisis of British capitalism

There is no economic experiment in recent history that has imploded as quickly as that of Liz Truss. A six-week prime minister is now in office but not in power – and may soon be out of office either. Yet while Truss’ ideological crusade had disastrous results, there was some truth to his analysis.

The UK, as she has repeatedly said, has been stuck in a low growth rut for over a decade. Since the 2008 financial crisis, the economy has grown at an average annual rate of just 0.9% (compared to 2.7% before the crash). Among the G7 countries, only Italy fared less well. The UK’s living standards crisis – average real wages remain below their 2008 level – has been fueled by this alarming performance.

Under successive Tory Prime Ministers, Britain has suffered a managed (and sometimes unmanaged) decline. David Cameron’s government has promised a ‘creators march’ to help the UK win the ‘global race’, but austerity has consistently weighed on growth and investment. Theresa May embraced the rhetoric of “industrial strategy”, but her post as prime minister was quickly reduced to an exercise in survival. Boris Johnson has proposed a new economic slogan (“leveling up”) but nothing resembling a strategy. The UK’s decline continued apace.

Truss’ mini-budget was a desperate attempt to break the cycle. (As, in the opposite ideological direction, was John McDonnell’s economic agenda.) She was at the forefront of an ideological project that derided her three conservative predecessors as soggy statists insufficiently committed to the market. The radical nature of the Budget was born out of a decade of political demands (Britannia unleashedthe pamphlet co-authored by Truss and Kwasi Kwarteng, was published in 2012).

Its failure reflects a series of self-inflicted mistakes but also the fragility of zombie capitalism that has prevailed since the crash. The economic bargain that George Osborne struck as Chancellor was “fiscal conservatism and monetary activism.” In other words, the Cameron government’s austerity was offset by the Bank of England’s ultra-low interest rates and money printing (quantitative easing). Those who have seen their income stagnate have been comforted by cheap mortgages, with the base rate not rising more than 0.5% between 2010 and 2017. The rise of new suburbs – dubbed ‘Barratt Britain’ speak Economist, after the UK’s biggest homebuilder, Barratt Developments, was crucial to the Tories’ march through the Red Wall. Cheap credit helped finance other markers of prosperity (cars and desirable vacations).

But the money print – compared by critics to crack cocaine – was uneasy with free marketers such as Truss. This has helped maintain worthless “zombie companies” and eroded the real value of money through inflation. The explicit goal of Project Truss was to overthrow Osbornomics: fiscal activism (tax cuts) and monetary conservatism (higher interest rates). Rather than the fool’s gold produced by the Bank of England, the Truss project would deliver the real thing through a growth spurt.

As it happens, voters, markets and Tory MPs didn’t even give the bill time to fail – they vetoed it in advance. By imagining that there was a large constituency for Reaganomics without the dollar, Truss was seeking to govern a country that does not exist (the day before the mini-budget, the British Social Attitudes survey showed that barely 6% of voters favored a combination of tax cuts and spending cuts).

And the market that helped keep the Tories in power for 12 years – the party has won a higher vote share in every general election since 2010 – is now collapsing. Driven by the markets, the Conservatives are threatening renewed austerity, but this time without compensatory monetary policy. By December 2024, five million households will pay on average £5,100 more a year in mortgage payments.

This shift would be painful enough if wages were to rise, but it promises to be truly dystopian after a lost decade for living standards. Although some conservatives welcome high interest rates as an old friend – half of the party’s voters are homeowners – conditions are radically different from those of the 1980s: house prices have risen by more than 1,100% since 1980 (wages have not increased) and the government no longer provides tax relief for mortgage interest. Wise conservatives have long worried about how to sell capitalism to those without capital – as property dwindles – but soon they will struggle to sell it even to those with capital.

History may remember Liz Truss as the prime minister who did the most damage in the least amount of time. But she must also be remembered as the leader who unwittingly asked the question that should haunt her party: what good is capitalism if it can’t generate growth?

[See also: How long can Liz Truss survive?]