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.