Foreword
The great fact of our times – “everywhere visible, nowhere acknowledged” – is the ending and reversal of economic growth.
In Henry’s paradox, we looked at some of the implications for business of this inflexion from economic expansion into contraction.
Our interest here is in the politics of economic decline. The Robert of our title is Victorian politician Robert Lowe, and his paradigm is that whatever happens in politics is a function of trends in economic conditions.
These are issues which wholly transcend both party politics and the politics of personality.
Section 1: Economic Backdrop to Politics
We can, for convenience, divide the economic backdrop to politics since the Second World War into three broad eras.
The Keynesian Consensus of the post-war years was replaced, at the end of the 1970s, with a New Liberal Ascendancy, most closely associated in the public eye with Margaret Thatcher and Ronald Reagan.
This ascendancy then mutated, dating from the 1990s, into a Post-Capitalist Expediency, in which New Liberal economic precepts were abandoned, in all but name, in favour of the preservation, by whatever means, of the post-Keynesian structures of wealth and power.
This transition occurred in conjunction with an economic deceleration identifiable as the precursor stage for the ending of economic growth.
The onset of economic contraction creates stresses that can be expected to undermine this expediency. Together, and as we shall see, decreasing prosperity, and rises in the real costs of necessities, will make it impossible to continue to combine an acquiescent sufficiency for the majority with the maintenance of the exorbitant privilege of a minority.
At the same time, a global financial system entirely predicated on never-ending economic expansion will struggle to adjust to the failure of this central predicate.
Necessarily, some countries and some governments will handle these challenges better than others. The Post-Capitalist Expediency has little or no ideological content, and we would be unwise to expect some kind of resumed ideological contest along the lines of the capital-versus-labour conflicts of the twentieth century.
As social complexity contracts, and centralised, top-down systems start to fail, ungovernability – the failure of government to sustain the support of the public – may be more likely than a return to the social unrest and the ideological contests of the past.
Section 2: Robert Lowe’s Definition of Politics
Robert Lowe (1811-92) has not been treated favourably (or even particularly fairly) by posterity, perhaps because he was that rara avis, a true intellectual in politics.
His role as the father of the limited liability corporation is seldom referenced. He is perhaps best known for championing the “three Rs” in education, and for the statement that “we must educate our masters”.
For some historians, his greatest claim for recollection is the ice-cool, logical rhetoric he employed in the fight against plans to extend the vote to the “aristocracy of labour” in 1866 and 1867.
To be clear, Lowe didn’t oppose democracy out of conservatism, still less out of self-interest. His belief was that education should precede enfranchisement.
He greatly feared the consequences of the handing of electoral power to the illiterate masses, who would be defenceless against the machinations of tub-thumping populists.
Even his remark, made in defeat after the Reform Act became law in 1867, that “we must compel our future masters to learn their letters”, is almost invariably mis-quoted.
As for the “three Rs”, his point – obvious to contemporaries, but less so to posterity – wasn’t the clever alliteration of “reading, ‘riting and ‘rithmetic”, but the pointed exclusion of religion.
His emphasis on the materially logical and demonstrable not only inclined him against a political role for unquestioning faith, but also against the hereditary principle (“all knowledge, save heraldry, has some use”).
Robert Lowe’s interest to us in 2025, though, lies in is his definition of politics as a contest “between those who have – to keep what they have got; and those who have not – to get it”.
This essentially economic basis of politics is Robert’s paradigm.
The rigorously logical Lowe was neither a democrat nor an aristocrat, but a meritocrat, so much so that, according to one contemporary, he was “all for a wise despotism”.
It might yet, of course, come to that.
Section 3: The Energy Cost of Energy
One of the biggest differences between 1918 and 1945 was that few were minded, at the end of the Second World War, to try to revert to the “business as usual” of the pre-war years.
A return to the euphoria of the 1920s and the miseries of the Great Depression held few attractions, whilst the work of John Maynard Keynes gave governments new tools for the management of what was then known as the “business cycle”.
Major institutional changes occurred in the immediate post-war years. The International Monetary Fund was established in 1945 to preside over the currency system agreed at the Bretton Woods conference in 1944. The second part of the Bretton Woods institutional architecture was the World Bank, created to encourage economic development in less affluent countries.
In many countries, the role of government expanded markedly in this period, within a widespread belief that the tools that had won the war could now be used to eliminate – in the words of William Beveridge – the evils of “want, disease, ignorance, squalor and idleness”.
Although various versions of the “welfare state” were established during this period, perhaps the Moon landing of July 1969 was the symbolic apotheosis of the possibilities of collective public-private co-operation, managed by the state.
This was an era of extremely benign economic conditions. In the quarter century after 1945, the dream of mass motoring became a Western reality, and many economic benefits – such as domestic appliances – ceased to be the preserve of a fortunate minority. There were times in this period when global petroleum consumption increased by more than 8% in a single year, something which has latterly become unthinkable.
The rapid economic growth enjoyed in the Keynesian consensus era was made possible by favourable changes in the supply of energy to the economy.
Just as oil was supplanting coal as the primary source of energy, so the Energy Cost of Energy dropped to levels well below 1%. The World’s largest oil field, Saudi Arabia’s al Ghawar – which was discovered in 1948, and brought on stream in 1951 – symbolised the energy abundance of this period.
Section 4: Stagflation Since the 1970s
The Keynesian Consensus broke down in the 1970s in a series of events triggered by the oil export embargo implemented by the Organization of Arab Petroleum Exporting Countries in October 1973. The OAPEC embargo was lifted in March 1974, but, in the intervening months, the price of oil had quadrupled, from $3/barrel to almost $12/b.
This triggered a wave of stagflation, with economies slumping at the same time as inflation soared. These conditions saw the emergence of bitter conflicts between capital and labour.
Although all of these adversities were traceable to the oil crisis, New Liberal opponents of the Keynesian ascendancy succeeded in convincing the public that they were caused by “left-wing” governments and “over-mighty” labour unions.
The solutions to the hardships of the 1970s lay, they said, in shrinking the state, deregulating the economy and curbing the powers of organized labour.
Initially, the New Liberals enjoyed a fortunate economic inheritance, The high oil prices of the 1970s not only discouraged oil consumption but also incentivized exploration and development in Alaska, the North Sea and elsewhere.
Although consumers immediately cut back on the use of oil, structural effects – including the development of a new generation of more fuel-efficient vehicles, and the phasing out of the use of oil in power generation – took several years to unfold.
These processes culminated in a collapse in oil prices at the end of 1985, which added to the favourable economic impetus delivered by the reversal of some of the adverse pressures of the 1970s.
Section 5: Monetary Adventurism and Post-Capitalist Expediency
The New Liberal Ascendancy reached its apotheosis in the early 1990s. With the Deng reforms already steering China away from the hard-line orthodoxy of the revolution, the collapse of the USSR symbolized, for many, the final victory of market liberalism over economic collectivism.
Triumphalism reigned, history had ended, and the liberals had won. With the “peace dividend” conferred on the West by the ending of the Cold War – and with the resources of Russia and her former COMECON satellites now open to Western investment – the economy seemed poised for a period of extremely rapid growth.
These high hopes were soon confounded, for reasons that seem to have baffled contemporaries, and remain little understood. As we know, the critically-important Energy Cost of Energy had started to rise relentlessly as older, low-cost sources of fossil fuel energy were depleted, and replaced by costlier alternatives.
Trend ECoE from all sources of energy rose from 2.0% in 1980 to 3.0% in 1990, and 4.3% in 2000. The latter of these moves seems to have been pivotal, since the ‘catch-up’ growth of the 1980s was followed by a marked deceleration which was sometimes labelled “secular stagnation”.
By the mid-1990s, concerns about sluggish growth were compounded by the emerging need to fill the ‘globalization gap’ between high consumption and comparatively stagnant incomes in the Western economies.
The result was the adoption of policies designed to make it easier than ever before for Westerners to access credit. This “credit adventurism” put the system onto an arc of inevitability that led, via the global financial crisis (GFC I) of 2008-09, to the “monetary adventurism” of QE, ZIRP and NIRP.
Little noticed along this progression was the abrogation of New Liberal economic principles. The successors to the Keynesian Ascendancy had been firmly committed to the notions of free market capitalism. Central to these principles were the unfettered operation of the market, and the ability of the owners of capital to earn satisfactory real returns on their investments.
Whilst the “credit adventurism” adopted in the 1990s did not, of itself, abrogate these principles, it triggered a series of processes whereby the market capitalist thesis was eviscerated by the events that began in 2008.
During and after GFC I, markets were rigged to keep rates low, and asset prices high. Prior commitments to minimal market interference were dropped, and investors could no longer earn satisfactory real returns on capital.
This amounted to the replacement, by stealth, of the New Liberal Ascendancy with a Post-Capitalist Expediency. The principles of liberal market economics had quietly been dropped, and with them went any pretence that the system “works for everyone”.
Section 6: The New System of Entitled Expediency
What happens from here is a contest between the beneficiaries and the opponents of the new system of entitled expediency. The outcome of this iteration of Robert’s paradigm will be determined by economic trends that the authorities and the elites are powerless to control.
Even if energy supply doesn’t start to contract quite yet, relentlessly rising ECoEs (see Fig. 1A) will exert tightening pressure on the surplus (ex-ECoE) energy that is the physical corollary of economic prosperity (Fig. 1B).
Unless we can make implausibly huge improvements in the ratio at which energy use converts into the supply of material products and services (Fig,1C), top-line “clean” (credit-adjusted) economic output will follow the curve of gross energy supply (Fig. 1D), whilst rising ECoEs will widen the gap between output and prosperity (Figs. 2A and 2B).
Figure 1. Click on the image to enlarge.
Section 7: Acquiescent Sufficiency and Exorbitant Privilege
The two most challenging pressures of the unfolding future are illustrated in the final pair of charts.
Together, decreasing prosperity and rises in the real costs of necessities will, as well as compressing the affordability of discretionary (non-essential) products and services, make it progressively more difficult to maintain the balancing-act of modern times.
The economic aim of governments today is to maintain the status quo by combining an acquiescent sufficiency for the majority with the continued exorbitant privilege of a minority (Fig. 2C).
The further the economy contracts, the more difficult this balancing-act becomes.
This means that questions of redistribution are poised to return to the top of the political agenda.
At the same time, wholly unsustainable burdens of debt and quasi-debt (Fig. 2D) are likely to undermine the essentially financial power-base of the Post-Capitalist Expediency.
Figure 2. Click on the image to enlarge.
Section 8: Intensifying Competition for Dwindling Resources
“Dog bites man” is seldom newsworthy, but “man bites dog” is the stuff of headlines.
Likewise, there’s nothing particularly startling about ‘taking from the poor and giving to the rich’. This is commonplace rather than noteworthy because, in most societies in which power and wealth are conjoined, the accepted flow of value is inwards and upwards, from the periphery to the centre.
When the Robin Hood of legend sought to right wrongs by ‘taking from the rich and giving to the poor’, he was standing this accepted flow on its head.
This is why he and his Merry Men were outlaws.
Robin’s task would have been easier, though, if the economy of Sherwood Forest had been growing. By investing the proceeds of his depredations, he could have given more to the poor than he had taken from the rich.
The contemporary problem is the converse, in that, as the economy contracts, governments may find themselves needing to give more to ‘the poor’ than they can possibly take from ‘the rich’.
Simplistic solutions such as the taxation of wealth will not suffice to square this circle. The wealth of the minority does not exist as some pot of gold that can be confiscated by a latter-day Robin to ease the hardships of the majority.
Rather, modern wealth overwhelmingly exists in paper form, and is valued, in the aggregate, by the application of marginal prices to the total stock of assets. If governments tried to expropriate these assets, most of their supposed ‘value’ would evaporate as prices slumped.
Looking ahead, we can anticipate that deteriorating material prosperity will combine with financial instability to create a political landscape with no parallel in modern times.
In that sense, Robert was right, and, in our situation, intensifying competition for dwindling resources is likely to drive a disorderly rather than a structured and organised transition to a post-growth social realignment.
