Demand, dysfunction and distribution: The UK growth model from neoliberalism to the knowledge economy
| Author | Nick O’Donovan |
| DOI | http://doi.org/10.1177/13691481211058018 |
| Published date | 01 February 2023 |
| Date | 01 February 2023 |
| Subject Matter | Original Articles |
https://doi.org/10.1177/13691481211058018
The British Journal of Politics and
International Relations
2023, Vol. 25(1) 178 –196
© The Author(s) 2021
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DOI: 10.1177/13691481211058018
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Demand, dysfunction and
distribution: The UK growth
model from neoliberalism to
the knowledge economy
Nick O’Donovan
Abstract
Theories of ‘growth models’ explain capitalist diversity by reference to shifting drivers of aggregate
demand in different national economies. This article expands the growth models framework
beyond its conventional focus on debt-driven and export-driven demand, through an ideational
analysis of Thatcher’s vision of a property-owning democracy, and Blair’s knowledge-driven
growth agenda. Drawing on policymakers’ statements, it shows how these hypothetical growth
models differed from the debt-driven growth model that ultimately prevailed. Using data on the
distribution of wealth and wages, it highlights how both approaches failed to generate sustainable
demand; in Thatcher’s case, because of an insufficiently broad distribution of capital ownership,
in Blair’s case, because of an insufficiently broad distribution of lucrative knowledge work. This
indicates that explanations of dysfunctional growth models need to consider not just the split of
national income between labour and capital, but also the distribution of both labour income and
capital income between households.
Keywords
demand, growth models, ideational political economy, knowledge economy, neoliberalism,
property-owning democracy
Introduction
Theories of ‘growth models’, as with many analyses in the field of political economy,
focus upon the social, institutional, political and economic structures that underpin devel-
opments in politics and the economy. In contrast to theories of capitalist diversity that
highlight supply-side differences in the institutional configuration of production – the
relationships (or lack thereof) between government, organised labour, the educational
system and private firms (e.g. Hall and Soskice, 2001) – the growth models approach
Future Economies Research Centre, Manchester Metropolitan University, Manchester, UK
Corresponding author:
Nick O’Donovan, Future Economies Research Centre, Manchester Metropolitan University, Manchester,
M15 6BH, UK.
Email: n.odonovan@mmu.ac.uk
1058018BPI0010.1177/13691481211058018The British Journal of Politics and International RelationsO’Donovan
research-article2021
Original Article
O’Donovan 179
emphasises the significance of demand, drawing attention to the different ways in which
developed democracies have sought to substitute for broad-based wage-led increases in
aggregate demand since the crisis of Fordism in the 1970s.1 The extent to which post-
Fordist demand is driven by business investment, government spending, exports and/or
private consumption (which itself might reflect either or both of wage growth and expand-
ing household debt) has implications for the political and economic configuration of
countries. It influences the composition of their economies (their relative reliance upon
finance, manufacturing, in-person services and so forth, both for productivity growth and
for employment), as well as their policy options (Baccaro and Pontusson, 2016). Growth
models also have implications for the relationship between countries: with countries that
relied on credit-fuelled household consumption to drive demand often acting as export
markets for countries that maintain demand by running a persistent current-account sur-
plus (Johnston and Regan, 2018).
Interestingly, these analyses suggest that many of these post-Fordist growth models
are (more or less) dysfunctional – that is to say, incapable of producing stable growth over
the longer term. In place of rising demand predicated upon broad-based wage growth,
countries such as the United Kingdom and the United States have instead depended on
debt-fuelled household consumption as a source of demand, a form of ‘privatised
Keynesianism’ reliant upon the ongoing availability of cheap credit, often secured against
booming house prices (Crouch, 2009; Hay, 2013; Jessop, 2015). But countries that rely
upon export-led growth (such as Germany) might find themselves in a similarly unsus-
tainable position, if demand in the markets that they are exporting to is also reliant upon
debt-fuelled household consumption.
This raises an important question: how do countries come to adopt dysfunctional
growth models? The goal of this article is to show the centrality of ideas to this process.
Building on Lavoie and Stockhammer’s (2013) insightful typology of growth models, it
argues that studying the way in which growth models were explained and justified by key
political actors provides insight into how popular support for dysfunctional growth mod-
els has been mobilised and sustained. Moreover, to the extent that we can interpret these
‘hypothetical growth models’ not just as propaganda or ‘statecraft’, but as a reflection of
the cognitive beliefs of policy elites, these ideas (and their shortcomings) may have
played a causal role in the (unwitting) adoption of dysfunctional growth models.
Specifically, this article reconstructs the growth models implicit in the property-own-
ing democracy discourse of the Thatcher era, and the knowledge-driven growth discourse
championed by Tony Blair. It shows how these hypothetical growth models differed, not
just from the dysfunctional debt-driven reality of the British growth model, but also from
the hypothetical growth model that Lavoie and Stockhammer describe as ‘neoliberalism
in theory’. This analysis helps to explain both the appeal and the limitations of these
growth models, and how they related to the realities of UK economic policymaking in
recent decades.
Clearly, analyses of the economic policies and ideologies of Thatcher and Blair are
legion; any article-length treatment of this subject can only present a highly reductionist
account of the pluralism of British political debate and policymaking under the two long-
est-serving Prime Ministers of modern times. Moreover, neither Thatcherism nor Blairism
was particularly concerned about the demand-side of the economy. In keeping with the
dominant economic orthodoxies of their times, their respective agendas focused on sup-
ply-side reforms to increase productive capacity, assuming that demand would follow.
Nevertheless, by focusing on the demand implications of these economic policy
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