Corbynomics redux?

One of the (few) positives of the leadership election and the Liverpool conference is that they forced Jeremy Corbyn to make speeches about policy.

Up to then Corbyn had behaved like an Old Testament prophet who rails against austerity, inequality and social injustice. This appeal never loses its emotional power, but what is extraordinary about Corbyn is his assertion of a monopoly of moral virtue for himself and his disciples which implicitly others in the Labour ‘family’ do not share. Personally I have never met any Labour party member who in their heart is not moved by these emotions: the hard question is how Labour secures a majority for practical and feasible policies to address these social ills. To put it politely as the party leader always requests, by this test Corbyn still has some way to go. At least the leadership election forced Corbyn to begin the journey.

To be fair again, the specific policies Corbyn began to outline are not in themselves misguided. I strongly agree with sections of his Bloomberg economics speech. The British economic model ‘has let people down badly’; we need ‘long-term patient investment that will deliver good quality jobs’; Labour should campaign to ‘reverse cuts in public investment’; education at all levels and ages should be a top priority; corporate governance needs radical reform; new models of cooperative enterprise should be promoted; in supporting growing businesses, there should be no ideological barrier to public equity stakes in growing businesses, as well as loans; and we need ‘an industrial strategy to provide support for essential industries and pave the way for those of the future’.

The last ambition, of course, is what Peter Mandelson was trying to achieve when he was business secretary under Gordon Brown. To declare an interest, I worked closely with him on developing that new industrial policy approach. Perhaps it would be too much to expect praise for those pioneering efforts in Corbyn quarters.

Similarly in the leader’s conference speech, of course I agree that Labour is fundamentally about ‘winning power … to deliver the real change our country so desperately needs’, that ‘it’s no good harking back to twenty years ago’ and that ‘we live in a new era that demands a politics and economics that meets the needs of our own time’. There is little future in a reheated third way.

The leader’s speech also contained both attractive and credible policy commitments: to end artificial restrictions on local council borrowing; to review social security entitlements for the self employed; to ensure successful innovators have access to finance; to invest in broadband, railways, housing and energy infrastructure; to raise R&D spend to three per cent of GDP; to bring back EMAs and introduce an arts pupil premium; and reinstate the Migrant Impact Fund.

Corbyn’s speeches have, however, one big flaw: the absence of clear governing fundamental principles that would guide Corbyn’s approach to the economy. First, is Corbyn comfortable working within the framework of a dynamic market economy? When he says ‘people are fed up with so-called free market system’, what precisely does he mean? Is he about managing capitalism better so that inequalities are reduced and its short-sightedness corrected? Or does he want to substitute ‘twenty -first century socialism’ for the market and, if so, what does he mean by that?

Corbyn’s speeches left me completely in the dark as to his preferred model for economic growth. Does he now fully accept that competitive private enterprise is essential to secure innovation and growth, with of course an ‘active state’ to nurture, regulate and even in some sectors guide it? Of course the culture of British capitalism has to change and to bring about that change will require not just a change of culture, but also a change in the laws surrounding corporate governance. Just as legal change has helped promote racial and sexual equality, legal changes should be used to promote ‘more responsible’ capitalism. But the key question for Corbyn is whether he accepts that the model is still capitalism, because otherwise he will not command the public consensus necessary for what he wants to achieve.

This is a perfectly reasonable question that Corbyn has yet to answer. Corbyn comes from a part of the far left that in the 1960s and 1970s rejected the essential revisionist principle that social democrats adopted in formally abandoning Marxism. The German SPD blazed the trail at Bad Godesburg in 1960 with its declaration that, ‘the market wherever possible; the state only where necessary’. In other words social democrats and democratic socialists accept that prospects for better jobs, faster growth and increased productivity depend on a thriving private sector. This in turn is an essential precondition of better public services.

Acceptance of this principle does not rule out an ‘active state’. It does not preclude more egalitarian taxation (if public consent can be built for it) or mean buying into the neoliberal magic of ‘the invisible hand’ or ‘trickle-down’. The financial crisis of 2008 was a very hard lesson in the inherent instabilities in capitalism and how governments at both national and international level have got to be constantly more questioning and assertive in regulating markets. This is of course a potential capacity for taming the excesses of the market that British social democracy will lose with Brexit.

Fundamentally, however, in a market economy the role of the state should be to correct market failures and be actively supportive and facilitative of business innovation and growth, setting stable regulatory, planning and taxation frameworks within which firms can make long-term investment decisions. Public investment (such as in digital and transport infrastructure) can help facilitate high quality private investment, but it cannot be a substitute for it. The investment decisions that lead to innovation and higher productivity are in the main taken by private sector firms in search of profits. Government could find better ways of influencing businesses to act in a more long-term way. But investment will only go ahead if there is viable customer demand for the activities that it helps generate, and from which firms can earn profits to reward their (hopefully more long-term) shareholders, which today are mainly the pension funds and investment funds through which lifetime savings are channelled.

These may seem obvious points. But I worked as a special adviser to the Callaghan government in the late 1970s. It was not clear to me then – and is still not clear now – whether leftwingers of the Corbyn stripe really understand (or agree with) the fundamentals of a market economy. In the 1970s, if firms ran into difficulties and were about to make large redundancies, then taxpayer subsidies were demanded to ‘save jobs’ – except the harsh truth was that in the long term these subsidies did not save jobs. The basic problem with British Leyland was that it did not make cars that people wanted to buy: its models were outdated and unreliable. Tony Benn thought the answer to many industrial problems was to put the workers in charge: hence the worker cooperatives that were sustained in production for long after they had any hope of viability. My fear is that Corbyn’s regional investment banks would be forced down the same road of catastrophic illusion. It is little comfort to be told in the Bloomberg speech that they would be ‘new democratic institutions with public service mandates’. I support a National Investment Bank, but one where commercial decisions about spending taxpayers’ money are totally separate from politics: otherwise all commercial discipline is lost, as frankly would be any prospect of sustained electoral support for a more interventionist industrial policy.

There is a wider point here about whether Corbyn’s view of the world accepts the need for industrial change. Are we a political party that would have backed the desperate handloom weavers of the early 19th century who tried to defend their jobs by destroying the new industrial weaving machines; or are we a party that sees its mission as helping workers through inevitable industrial change? In Corbyn’s Bloomberg speech, the prophet takes as his parable the story of Shirebrook: the location of a Derbyshire coalmine that became the deindustrialised site for the contemptible workplace practices of Mike Ashley’s Sports Direct warehouse. I worry that Corbyn believes part of the moral of the story is the government should have intervened to subsidise coalmining and protect ‘good jobs’ at Shirebrook. But this would be perverse. Thousands died in the pits and hundreds of thousands suffered long agonies through the most dreadful industrial diseases. European Union rules are rightly forcing us finally to close our remaining coal-fired power stations in order to meet our climate change obligations. Rather, the problem with Shirebrook warehouse is that government has not done enough to clamp down on abuses of Britain’s highly flexible labour market. This is something where New Labour did get the balance wrong, though it is malicious and wounding for the Corbynistas to argue that the Blair and Brown governments were no better than the Tories. Our government introduced, in face of determined Tory opposition, the national minimum wage, the EU Social Chapter, and statutory union recognition rights, but in too ‘sotto voce’ a way, without sufficient ambition and practical enforcement to stamp out those who sought to exploit loopholes in the rules. The key to the success of such a policy is to win support from the many ‘good’ ethical businesses for the necessary tightening of regulation: otherwise Corbyn will in all likelihood lose, not gain votes for Labour.

Similarly there is a big agenda Labour must address – in partnership with business – to ‘reform capitalism’. Much of this concerns the way in which ordinary families’ savings are managed: the consumer and transparency issues surrounding the high fees that investment managers rake off for their services; the public interest/industrial policy questions as to whether sufficient funds are invested for the long term in growing businesses and infrastructure; and the question of employee involvement in corporate governance, including managerial remuneration. The electorate, however, will only support government intervention in the way their personal savings are managed and businesses are run, if they trust the government’s commitment to make a success of a dynamic market economy.

The final big question that Corbyn’s speech leaves unanswered is fiscal credibility. In the leadership election the candidates entered a foolish war over new spending plans that cost billions, with lots of noughts on the end. Personally, I could just about make a case for the Owen Smith £200bn figure. At £40bn a year over five years it would add 2-2.5 per cent to the share of investment in GDP. In 2010 Labour was spending roughly three per cent of GDP on public investment. Initially (and foolishly) George Osborne sought to halve it to 1.5 per cent. So Owen’s plan would more than restore the cut, but the increase beyond that could be justified by historically low interest rates. The Corbyn plan for a £500bn investment boost over five years is scarcely credible at all. It would mean a six per cent per cent per annum boost in public investment’s share of GDP – from below two per cent at present to something like eight per cent. This is at a time when the economy in London and the south-east is operating at or near full employment – and only able to cope by sucking in hundreds of thousands of migrant labour. It would be an investment plan of a scale we have only seen in wartime, and that was only viable as a result of a massive suppression of personal consumption for which I doubt our leader has any firm plans! In addition this would come at a time when the United Kingdom still has one of the highest public sector deficits in the EU (second only to Greece in the old EU 15) and when our balance of payments deficit is alarmingly high.

One of the structural factors ‘Corbynomics’ appears to ignore is that, as the governor of the Bank of England put it, we are as a country ‘dependent on the kindness of strangers’. Yes, Britain needs to invest its way out of its deep structural problems. But this can only be done through a policy that sustains overseas investor confidence in the stability of the UK economy. Post-Brexit this can no longer be guaranteed. Were Corbyn to be elected and try to implement what he has promised, the likely result would be a massive sterling crisis, far beyond the one that already looms. It would be starting out on the path of inflated expectations and unrealisable promises that led the Labour government to the IMF debacle in 1976.

So Corbyn’s economics are at best naive and deeply flawed. On the worst interpretation, his prospectus for a Labour government would produce the ‘crisis of capitalism’ that for decades many of his acolytes have so long wished for. He needs therefore to clarify his intentions and set out more robustly the governing principles underlying his policies. Otherwise the outcome could be a disaster for the working people that are the group in society he claims so especially to defend.

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Roger Liddle is a member of the House of Lords

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Photo: Bloomberg TV

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Comments: 4...

  1. On October 5, 2016 at 12:42 pm Observer responded with... #

    “The Corbyn plan for a £500bn investment boost over five years is scarcely credible at all”

    That’s because it’s over ten years. Which renders the rest of the paragraph rather redundant.

    Can’t Progress find contributors who have actually paid attention to what they’re writing about?

  2. On October 5, 2016 at 12:47 pm Alf responded with... #

    We can’t go back to just being Tory-lite, attacking people who rely on welfare, or lumping huge debts on our young people. That’s for sure.

  3. On October 5, 2016 at 6:15 pm Elizabeth McIntosh responded with... #

    Roger, two questions:
    can you let me have the reference for your statement that Corbyn says that only he and his supporters have moral virtue please. I know it cannot just be an assertion on your part.

    How do you feel about being outflanked on the left by Mrs May’s economic policy statements?

  4. On October 5, 2016 at 9:11 pm David Lindsay responded with... #

    Jeremy Corbyn has changed the entire terms of the British political debate. Today’s was by far the most left-wing speech that I have ever heard any Prime Minister deliver. And all because Corbyn exists.

    “Government can and should be a force for good, and provide what markets cannot,” said Theresa May, as she denounced “the libertarian Right”. Government should, “provide security against ill health and unemployment.” Yes, she really did say that. Followed by ritual drivel against Labour, seconds after a long passage for which Corbyn would have been branded a Trot.

    “The party of the workers, the party of public servants, the party of the NHS”? Not just “the workers”, either. How many times did Theresa May use the term “working-class”? Her analysis of why people voted for Brexit was precisely that of Corbyn in his message to her on becoming Prime Minister. She waxed lyrical about the NHS, in the way that Gordon Brown used to do. But in decrying Tony Blair’s privatisation of England’s NHS, she agreed with Corbyn all along. “Tax is the price we pay to live in a civilised society,” she opined. Compare the reaction to that with the reaction when Corbyn or John McDonnell says exactly the same thing.

    On rural broadband, on energy tariffs, and on housebuilding, she is more left-wing than 172 Labour MPs. Britain did not have workers’ reps on company boards even in the 1970s. That means union reps, of course. Who else is it going to be? And grammar schools “where parents want them, and where they’d improve standards.” So, nowhere that anyone got up a petition against them, then. There was no ban on new grammar schools during most of the long period when no one tried to set one up.

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