With the last, desperate attempt to restore the integrity of the system he had given his life to having failed, the only tolerable course of action open to Sergey Akhromeyev was to hang himself. Over the years, many have questioned whether Akhromeyev and his fellow plotter of the August 1991 coup attempt, Boris Pugo, truly died by their own hands. Surely, a soldier like Akhromeyev would have done the job with his service pistol, rather than hang himself with his Party ribbon? Along with a short note giving some account of himself, Akhromeyev left behind a modest but precise amount in cash, to cover his outstanding bill at the Kremlin staff canteen. It seems unlikely that an assassin would have gone to such trouble.
I wrote before about how Britain’s present political settlement carries the same stench of doomed malevolence as the communist regimes in Eastern Europe in the years before they collapsed. Yet I will be the first to admit that the analogy only goes so far. One cannot imagine the architects and apparatchiks of the Blairite state doing the decent thing — with the aid of their rainbow lanyards — when the curtain finally falls. And Pret wouldn’t have offered them credit anyway.
Akhromeyev’s last gesture, and the objectives of the coup attempt that sealed him into that path, was an expression of a particular sense of Marxist-Leninist propriety — one that was fundamentally at odds with the reality of the modern world into which Mikhail Gorbachev had been attempting and failing to integrate the USSR. Financial debt had become a defining feature of the Soviet Union in its final years; the socialist superpower’s dependence on the institutions of Western capitalism to keep itself creaking on made a mockery of decades of propaganda.
Looking back, it’s surprising to remember that up until the mid-1980s, in the world of international high finance, the Soviet Union was considered one of the most well-regarded sovereign borrowers. The Ministry of Trade’s monopoly on international transactions, and the size and solidity of the Soviet state, left creditors reassured that the Union’s institutions would never be allowed to fail in their financial obligations. But with the Gorbachev reforms, all of that changed, as sub-sovereign and state-owned entities were given the authority to negotiate their own financial dealings with foreign entities, and to build up debt on their own books. Suddenly, international markets took an interest in which bits of the Soviet economic system actually sustained themselves, and they did not like what they found.
For much of its existence, the Soviet economic and trade strategy was simple; to use the export of commodities to finance the development of heavy industry, with domestic consumption deliberately suppressed, even to the point of famine. Initially, the primary export commodity was grain, eventually replaced by oil. The success of this strategy in the 1920s and 30s is often exaggerated, with industrialisation in these years probably proceeding slightly more slowly than it had done in the Russian Empire in the period 1890-1914. It was in post-war reconstruction in the late 1940s and early 1950s (with the assistance of expropriated plants from defeated Germany) that this approach demonstrated the most impressive results.
However, once the country had rebuilt its basic industries by the early 1960s, the command economy proved far less successful at cultivating innovation and driving productivity than the market economies of the West, and the USSR began its long period of economic stagnation. The necessity of suppressing domestic consumption in order to maintain a sustainable balance of payments created widespread political dissatisfaction. At the same time, the Soviet Union was attempting to maintain military parity with the United States and its allies, as well as equipping and arming its network of client states in Africa, Latin America and the Middle East.
This burden was ultimately unsustainable, but for many years, the Soviet system was able to make a decent fist of hiding it — not only from the outside world and its own citizens, but also from its own leadership. So long as the central government maintained a monopoly on international trade, and the citizenry were unaware how far behind the West their own living standards were falling, then continual trade surpluses could be kept up. Huge swathes of Soviet industry were consuming more resources than their output was worth, but the profitability of key export commodities ensured that the economy overall was just about in surplus, so long as consumption was kept to a bare minimum. This resulted in vast distortions in the allocation of resources, and unmet needs and wants on an immense scale among a population who, up until perestroika, had little choice but to lump it.
Political choices cause resources to be allocated in very strange ways, and incentivise behaviours among consumers, investors and producers that run contrary to the interests of prosperity
At first glance, this bears little resemblance to the economy of modern Britain, in which basic and heavy industries have atrophied or moved abroad, and in which a free-floating currency means that a large current account deficit and a reliance on imports is regarded essentially as a self-correcting non-problem. Under the surface, though, we can find a system in which political choices cause resources to be allocated in very strange ways, and incentivise behaviours among consumers, investors and producers that run contrary to the interests of prosperity. The ultimate answer of where these resources will come from, and what the corresponding opportunity cost will be — i.e. who pays — is left unaddressed. The wealth is assumed simply to exist because the need exists, and if it doesn’t it will be up to somebody to create it, and hand it over.
The most obvious area in which this is visible is the parlous financial state of many British local authorities, as a result of the imposition of adult social care costs onto their budgets, with additional pressure created statutory obligations to provide certain services, such as taxis to take children with special needs to school. Some of the figures associated with these expenses are truly astounding. Certainly, these needs could be met in one manner or another far more efficiently, but it is the underlying logic that illustrates the predicament of the system.
The local authorities know that these costs are ultimately unsustainable. SEND taxis, adult social care, and the various other statutory obligations substantially exceed the taxes they are able to levy. But it is illegal for them not to provide those services, so they go on doing so; borrowing for as long as they are able to, in the knowledge that at some point, they will go bust — as some already have and dozens more are projected to in the coming few years. If a private company were to do this, it would be considered trading while insolvent and it would be illegal — but for the local authority, it would be illegal for them not to.
What really happens when a local authority goes bust? Technically, they cannot go bankrupt in the way that a business can, but they can issue a Section 114 notice, obliging councillors to come back with a new budget within three weeks. These usually necessitate substantial cuts to the most basic services the authority provides to rate-payers, such as waste disposal, but the statutory obligations remain. Presumably, what is keeping the whole thing going, and causing suppliers and creditors not to consider the entire realm of local government in Britain as financially delinquent, is the unspoken assumption that ultimately, the national government will be obliged to stand behind local authorities. But the situation in Birmingham suggests that we will have to wait to see just how much ruin there is in a city before Whitehall steps in.
Burdensome statutory obligations are not the only way in which the law has intervened ruinously in the finances of local authorities. Birmingham City council was ultimately bankrupted by a tribunal judgement on historic equal pay claims, which saw judges rule on whether or not a range of jobs were “equal” or not, and thus whether a group of predominantly female employees in one set of roles had been discriminated against when compared to another group of predominantly male employees in another set of roles. They did this with seemingly minimal reference to what those people actually did in their jobs, or to the relative aggregate supply and demand for people willing to do that work in the economy as a whole Instead, justices appeared to be making a subjective judgement on the relative social status of the jobs, which they concluded were equal and thus befitting equal payment. This followed several similar judgements against private sector employers which collectively, are likely to be transformative in how low- and semi-skilled work is contracted and remunerated across the economy.
Beyond the Equality Act, the Human Rights Act, the Climate Change Act and the raft of other quasi-constitutional laws that guide the judiciary in their role as the nation’s economic guardians, there is now a bewildering array of entitlements, cross-subsidies, and needs-based pricing which completely distort to whom things are sold, for how much, and where the bill is sent.
Commentator Max Tempers has documented the astonishing growth of the Motability scheme in the financing of new cars, to the point that it now accounts for at least a fifth of the market. This means that hundreds of thousands of brand new vehicles are paid for out of Personal Independence Payments to individuals for disabilities, the huge growth of which in recent years seemingly being down to mental health complaints, such as anxiety. In an example of knots of legally enforceable entitlements the state has bound itself up in, a council is forbidden from taking into account whether a parent has motability financed car on account of a SEND child, should they also request a council-funded taxi service to school.
In housing, strict rules ensure that builders must offer a certain percentage of any new development at sub-market “affordable” pricing in return for permission to build anything at all. In utilities and banking, a baroque structure of cross-subsidy ensures that the costs of serving the bottom quintile are passed on to the slightly better off, at the government’s behest. The exception is retail electricity, where the market has been abolished altogether by the government’s price cap — introduced to shield consumers from the price shock in Autumn 2022, and now effectively politically irremovable. Although government intervention in energy pricing had distorted anything resembling a free market in electricity, by imposing the costs of subsidising, balancing and backing up intermittent generation, long before that.
I could go on and on, but the important point is that in many cases prices are ceasing to mean anything — they are simply a division of the cost of supplying something for everyone, divided by the number of people the state deems able to pay. They no longer serve as a signal telling producers where to allocate resources and what to prioritise. Price signals act as the nerve system of a market economy — the alternative ought to be a command economy, but Britain has no mechanism for that either.
The link between production and consumption has been broken
In the Soviet Union, people’s pay lost any real meaning because, without any supply of consumer goods, there was nothing for workers to spend their money on. So, productivity dwindled because there was no point in doing anything more than pretending to work and not causing a fuss. In Britain, with our increasingly rights-based approach to resource allocation, we see a similar flatlining in worker productivity, as the non-working population grows. The link between production and consumption has been broken.
Under Marxism-Leninism, an authoritarian system of government attempted to prove a hypothetical theory of economics by brute political force. In today’s Britain, we see a growing trend of economic matters being redefined as questions of rights and obligations justiciable by law. Whereas the Soviets ultimately attempted and failed to prove that the realm of economics could be subverted to political will, in Britain today we are attempting to create a system in which the economic realm is subservient to that of jurisprudence. Rather than the mighty and wilful state claiming mastery of the markets in the interests of the proletariat, it is courts that will dictate which wants and needs are to be met.
Yet, as became the case with the Soviets, Britain is dependent on borrowing to keep the show on the road. The government cannot throttle back consumption in the way the commissars of old used to be able to, because consumption and spending is guaranteed by right — or at least, it is for some people. Sure, Britain is not the first western country to get itself into piles of debt, and while baleful, the actual public finances in the sense of the Treasury could be a whole lot worse. Lenders are willing to cut functioning states who issue hard currency a lot of slack for a long time.
But the risk is that somebody actually looks at the implications of the logic which the British system is now running under; it is not feckless politicians overspending to win electoral advantage — markets are familiar with what happens then. What we have instead is a legal settlement that obliges certain needs to be met, under the terms enshrined in rights that are considered sacrosanct, rather than under the normal tax vs spend trade-off of political economy. Sometimes these needs are to be met by the central government, sometimes by sub-sovereign entities with ambiguous terms of insolvency, and often by other members of the public who it is just assumed will go on being productive. The question will be; what happens when we run out of those people? Say what you like about Sergey Akhromeyev, but at least he didn’t expect someone else to cover his canteen bill.
