Category Archives: New economic order

It’s about the fundamentals, silly

The basic reason that the leadership election has been so disappointing, until Jeremy Corbyn came on the scene, was that it was stuck on issues (insofar as it was stuck on any issues at all) that, while certainly important, did not have the makings of a vision.   Even when Corbyn prompted the others to produce some actual policies, they were not the real thing.   Andy Burnham was right to praise land value tax and above all the need to integrate social care within the NHS, and Yvette Cooper was absolutely right to demand that Britain takes its proper share of Syrian refugees where the government response has been callously dehumanised.   Bully for her.   But these are not the fundamentals, and only Jeremy Corbyn seems to have grasped what this election is really all about.

it is about how the world (because it concerns far, far more than just Britain) should respond to the most momentous event since 1945.   That is the biggest financial/economic crash for nearly a century, the slowest recovery since the Great Depression, and the longest run of prolonged austerity (and far from over) since the 1870s.     The City, the corporate business elite and the Tories (and to a lesser degree the Blairites from Blair downwards) regarded this as a glitch from which business-as-usual should return as soon as possible.   They believed the underlying structure was sound, the ideology was right (i.e. de-regulation of finance, unfettered capitalism, glorification of the market, privatisation of all industries and services wherever possible, and suppression of any counter-force and in particular the trade unions), and removal of governments from the action was the best way to promote efficiency and growth.   But not only did they believe it then, they still believe it when the evidence against it is now overwhelming.

The ultra-liberal business model has manifestly failed.   It has led to an intensely fragile global economy, indeed to secular stagnation as Lawrence Summers has rightly termed it, and over six years of grinding austerity have produced neither sustainable growth nor much deficit reduction.  We need some new ideas about the fundamentals, and only Corbyn seems to be offering them.   He opposes further austerity on the grounds that continually contracting the economy is incompatible with lasting growth.   He wants to rebalance the economy by large-scale public investment in industry and services, with the serious goal of full employment, paid for either by mandating the publicly-owned banks to prioritise investment in British manufacturing or by a direct injection of QE funding into industrial investment rather than via the banks or by requiring a fair contribution of the costs from the extremely rich, none of which would require any increase in public borrowing.   Instead of pursuing privatisation and outsourcing which has turned out wildly expensive and wasteful, he would seek to create a new settlement between State and markets where private markets have clearly failed, particularly in sectors like energy, housing, rail, water, pensions and banking, in a manner that optimised the public interest rather than just maximised money-making.   And much more.

The deeper reasons for supporting Corbynomics go far beyond re-nationalisation

It is curious that the main charge thrown against Jeremy Corbyn – apart from all the bluster and hysteria – is that his policies lack ‘economic credibility’.   The assumption presumably is that the economic policies pursued by UK governments, both Labour and Tory, as well as by the EU, were sufficiently credible and rewarding as to justify or even necessitate their continuing to be followed.   Even a second’s thought shows that that is an absurd proposition.   The business model of free market de-regulated capitalism which has been ruthlessly taken to extremes over the last 3 decades is patently bust.   It led inexorably to the biggest global breakdown for nearly a century, followed by the longest recession and the slowest recovery since the 1870s – indeed a secular stagnation with still no recovery in sight.

We were told that the markets were self-regulating and that the role of government was to get out of the way.   It turned out that the opposite was true, and that the economic system was only kept going at all by the constant drip-feed of government-initiated QE.   We were told that the dynamics of capitalism would self-generate the levels of demand to keep the system constantly expanding.   It turned out that growth was only achieved, if at all, by stacking up debt to prodigious levels, opening the way to the next financial crisis when the debt bubble imploded.  We were told that giving a free hand to investors would ensure the maximum efficiency in the allocation of capital.   What actually happened is that capital flocked to emerging markets which offered the best return, then flowed out again equally fast as soon as Western financial conditions improved, leaving emerging markets badly weakened and exporting deflation to the West.

The cataclysm of 2007-9 was a lesson that international policy co-operation was needed to increase global demand.   It was a lesson that higher investment in infrastructure and skills was needed to increase productivity.   It was a lesson that an economic model based on widening inequality was undermining the essential requirements of a successful economic system.   It was a lesson that uncontrolled capital flows are both dangerous and counter-productive.   It is clear that none of these lessons were learnt.   Perhaps Jeremy Corbyn’s greatest contribution is that he is not accepting the status quo which is rotten: an over-sized financial sector, a neglected manufacturing industry, inadequate investment, flat productivity, huge and growing balance of payments deficits, ballooning inequality, and an economy mired in enormous permanent debt.   He deserves credit for arguing that the fundamentals have got to be changed; it’s a debate we desperately need.

The Labour leadership contest is a classic example of how it should not be fought

Sadly, but predictably, the Labour Leadership struggle has been so much mired in bluster and hysteria that its true potential significance has been largely obscured.   A contest of this kind should start, not with who it is claimed has the style and presentation to be the most plausible leader, but with what it is argued is currently wrong with the country, what policies are necessary to put those things right, what mechanisms are proposed to achieve that, and how should they be funded and delivered.

Arguably the most pressing problems for Britain at the present time can be summarised as follows.   What were the causes of the financial crash and the consequent prolonged downturn, and what lessons need to be learnt to prevent a recurrence?   Does the manifest lack of adequate reform of the financial sector make it likely there could be another catastrophic slump again soon?    Is austerity the right policy to cut the deficit?
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Brown has a nerve to lecture us on economic credibility or winning elections

It is hard to believe that Brown had the gall in his anti-Corbyn diatribe to declare that “the best way of realising our high ideals is to show that we have an alternative in government that is…neither a pale imitation of what the Tories offer nor is the route to being a party of permanent protest, rather than a party of government”.   The prime reason that Labour lost 5 million votes between 1997 and 2010 was, apart from Iraq, the fact that a very large minority of Labour voters did think precisely that – that under the regimes of Blair and Brown Labour was indeed ‘a pale imitation of what the Tories offer’.   It’s also why UKIP gained 4 million votes at the election three months ago because a huge chunk of the electorate had indeed come to the conclusion that ‘they’re all the same’.

Brown was the overseer of deregulated finance, free-wheeling market finance, the introduction of privatisation and outsourcing into health and education, and keeping the unions on a short leash to encourage foreign investment into Britain.   Those were all Tory policies inaugurated by Thatcher which Brown didn’t reverse in any significant way, but actually extended in various ways, particularly in offering huge concessions to the City of London when he hosed down the banks and hedge funds with laudatory hyperbole in his Mansion House speeches to the assembled potentates of finance.   And to give equal encouragement to Big Business, Brown enormously extended the Private Finance Initiative (PFI) which  offered government-guaranteed profits to business for the next 25-40 years at taxpayers’ expense.   This wasn’t a pale imitation of the Tories; it was the epitome of Tory ideology.

And as to Brown lecturing us on winning elections, he was the most unpopular prime minister since the second world war and lost the 2010 election with the lowest Labour vote since 1918.   He was the architect of ‘regulation lite’ (i.e. virtually no regulation) for the banks and finance sector which undoubtedly contributed to the recklessness and arrogance of the banks in all but triggering a global recession.    To that extent Brown’s support for unregulated free-market capitalism was a significant contributory factor in bringing about the biggest financial crash for nearly a century, from which the Labour party and the centre-left parties of Europe have still not recovered.

It is the arrogance of Brown and Blair in assuming that they alone, the Labour establishment, have the unique skills to win elections that actually they have proved rather adept at losing, which is so galling.   Above all they, alongside the Tories,  have insisted on endless austerity as the right way to achieve deficit reduction which is not only incredibly unpopular, but also patently failing to achieve its ostensible goal.   Jeremy Corbyn is far more aligned with what the people of Britain clearly want, while the Blair-Brownites are in a state of denial.   Brown should look to his own record: when in a glasshouse, don’t throw stones.

Why Blairites are going hysterical

In 1994 Blair took over the Labour party and made it safe for British capitalism.   Which is why so many top companies and banks were content to contribute large sums to the party in order to hedge their bets – they gained whichever party won the elections.   Up till now they have dominated the Labour party for the last 20 years.   Blair’s abiding legacy, apart from the Iraq war, was to abandon the fundamental principles of the party and to assimilate it instead to the Thatcherite ideology of ‘let the markets rule and the State get out of the way’.    When Mrs. Thatcher was later asked what was her greatest achievement, she replied without hesitation: ‘New Labour’.   And the Daily Telegraph 6 months into Blair’s premiership published a half-page photo of Blair standing in front of a large picture of Thatcher in No.10 with the inscription underneath: ‘To Thatcher, a son’.   By accommodating the ruling corporate class the Blairites used the Labour party as their avenue to power, and it’s hardly surprising now that they are in such a state of denial and disbelief at their abrupt fall from power over the last month.

Of course the Blairite faction is sincere in believing that they alone know how things should best be run and that, as Blair himself has constantly reminded us, any millimetre departure from his prescribed course will bring chaos and disaster.   Not only does that show their unwillingness to listen (the party was virtually disbanded under Blair into a press release and door-knocking organisation), but it also exposes a deep arrogance about their own invincibility and their contempt for any radicalism from the Left.   The writing was already on the wall in Greece, Spain, and Scotland, but still they thought they could muffle dissent and ignore it.   It is a lesson in political nemesis.

Of course the Blairites will protest that they, and they alone, won three elections in a row.   The truth however is that the Tories threw away the 1997 election rather than that Labour distinctively won it, the second election was marked by stasis after an undistinguished 4 years, and the third saw the loss of 4 million votes after Iraq.   They will also appeal to the huge investment in health and education.   But a large part of the former was spent on building (fine for the construction industry rather than the essentials of health) and on outsourcing and privatisation (again good for the corporates rather than patients), whilst in the case of the latter there were huge building programmes inaugurating academies and free schools which have never proved their worth and have never been popular.

 

The reason Corbyn’s winning is that he rejects the Tory austerity ideology, and so do a majority of the public

The arrogance and intolerance of the Blairites is breathtaking.   Faced with the prospect of a runaway victory for Jeremy Corbyn who has come from repudiated outsider to front-runner in scarcely more than a month, their sole response is to prepare a coup against Corbyn if he is elected leader under the section 47 procedure of the Labour Party rules.   It is hard to exaggerate the folly and selfish indulgence of such a move.   For the Party to spend 3 months in continuous debate and hundreds of hustings in accordance with the legitimacy of Party democracy, and then have an insider palace coup seek to overturn it via back-rooms intrigue within the PLP would be utterly disreputable.   It would split the PLP and likely also the Labour Party as a whole.   Maybe that is what they want: if they cannot get their own way, they would prefer to bust the Party rather than accept democratic choice.   That has always been the way: the Right has always used the Party as a base for its own domination and access to government, while the Left has always remained loyal to the Party it seeks to represent.
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The IMF saves Eurozone from itself, but much more than ‘haircuts’ needed

Who would have thought that the IMF, the pillar of international capitalism set up by the Americans after the war to police the global economies in the interests of the Washington Consensus, should come to the rescue, not of the finally compliant Greeks, but of the triumphalist yet wayward Eurozone (for which largely read Merkel and Schauble)?   Nothing, certainly not condemnations for the Left around the world, could have exposed so ruthlessly the rigidity, greed and intransigence of the German establishment.   Nothing, equally, could have thrown Greek politics into such a vortex of unpredictability, with Tsipras relieved from having to defend the indefensible, and with his party saved from splitting and having to depend on the far Right to win the votes in Parliament.  But the relief may be short-lived as the IMF has itself laid down extremely harsh terms as the price for its consent to the deal.
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Labour leadership contestants need to break out of Tory cage

What is so disappointing (so far) about the Labour leadership contest is the failure to edge the party to any significant degree away from a look-alike Tory posture.   Osborne launches the biggest cuts programme of the last century, and we are told that if we wish to be taken seriously we must be as fiscally conservative as the government.   Osborne preens himself with running the economy on a permanent surplus, and Labour, not to be outdone, endorses the idea, absurd and unworkable as it is.   The Tories taunt Labour for being on the side of shirkers against strivers – a ridiculous claim when Osborne has just impoverished millions of workers in poverty by severe cutbacks in working tax credits – but Labour, for fear of being lampooned by the Mail for being soft on ‘lifestyle’ benefit recipients, lamely echoes its support for tightening the benefit cap.   When is Labour going to stand up and assert what it really believes in?
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The Blairites are beginning to panic about Jeremy Corbyn

Having at the outset of the leadership contest been contemptuously written off as ‘unelectable’, Jeremy Corbyn seems to be surprising everyone that he is now rapidly emerging as a serious contender.   But they shouldn’t be surprised.   He represents what the majority of the Labour Party have been crying out for for years – a leader who does not think that we should all behave like mini-Tories, who is not an insider member of the enclosed Westminster bubble, and who genuinely engages with grassroots activists campaigning across the country and indeed internationally.

The Blairites don’t get it because they believe that their ideology of light-touch financial deregulation, market fundamentalism, privatisation of public services, relaxed attitude to people becoming filthy rich, keeping the unions on a very short leash, and hob-nobbing with the corporate elite is the natural order of modern politics.   But those are Tory themes and they are not shared by the vast majority of Labour members.  They are in fact the reasons why throughout the noughties the leadership became so estranged from the grassroots base of the party.   To return to these basically Tory themes now would risk not only alienating further a disconsolate party, but actually splitting it altogether.
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