New Labour and the British Model of Capitalism

Abstract

Britain’s economy was clearly transformed during the Thatcher-Major years, but what difference did a decade of New Labour make? Building on the comparative capitalism literature, this chapter offers an empirical index to compare British capitalism to other advanced economies, and to track changes over time. We show that Britain remains a liberal economy, although somewhat less so than in 1997. We offer a narrative of key changes during the Blair years, focusing on role of the state, the organization of labor, and the regulation of business. The most notable changes were substantially increased government spending (mainly on social welfare) and greater business regulation. Turning to outcomes, we argue that the Blair government’s macroeconomic record was solid, transforming Britain from a laggard to a leading European economy. The chief blemishes were continued high inequality and an inability to alter the underlying productive capacity of the economy. Finally, we argue that New Labour’s attempt to reconcile globalization with social democracy has created a hybrid form of capitalism best described as an “Anglo-Social” model.