Social democracy in hard times

I know a party conference isn’t the place for clear thinking about fundamental issues. But even so, Ed Balls’ speech contrives to miss the basic challenge facing policy-makers.
His five point “plan for growth“ consists mainly of temporary tax breaks and the pulling forward of public investment. This would be OK(ish) if our problem were merely a cyclical one of temporarily weak demand.
But it is not. We also face the problem that a combination of slower productivity growth and the investment dearth mean that might well face years of sluggish growth - and the “tough fiscal rules” Balls advocates would merely exacerbate this.
Balls, though, gives little hint of being aware of this. He seems to be in a pre-crisis mindset which imagines that economic growth can be achieved if only policy-makers do the right thing. But what if it can’t? What does a leftist economic policy then look like. As Hopi asked:

What is a progressive social democratic party actually for, if it is not able to spend more money than in the past?

I’d suggest four possibilities:
1. Given that investment opportunities are scarce, we must make the most of the few we have. This means investment mustn’t be held back by red tape or by a lack of finance; Adam Posen’s call (pdf) for a state bank is thus worth considering. But we shouldn’t be too optimistic about what these can achieve.
2. There’s a case for limiting top pay. The point here is not merely about fairness. One lesson of the collapse of the banks is that high pay doesn’t work. It doesn’t call forth “talent”, but rather destructive rent-seeking and risk-taking.
3. There’s also a case for more redistribution to the lower-paid and unemployed. It looks as if the main problem for coming years will be a lack of demand for labour more than a lack of supply. Worrying about blunting work incentives in this context is silly.
4. Workplace democracy. Again, another lesson of the banking crisis is that top-down organizations can fail badly; naturally, given his Brownian managerialism, Balls cannot see this. Managers should be seen not as superheroes capable of transforming organizations but rather as custodians and administrators, and be selected and paid accordingly. Note that I regard worker democracy as a means of increasing equality in part by curbing top pay.
What’s more, with public spending likely to be squeezed, it is vital that we make the most of every pound that’s spent. This requires that public sector workers have more control, as it is they more than managers pursuing vainglorious strategies who know the detailed nitty gritty of how cash is wasted.
Now, you might object here that I’m seeing my favourite hobby-horses here. Maybe. Please suggest alternatives. The key point, though, is that Labour must ask what social democracy looks like in hard times.
Not only did Balls not answer this question, he didn’t even ask it.

Comments

[Keith]

Are you not taking this too seriously? Party conference is irrelevant it has no power. The whole point of "New labour" is that it is a top down managerial dictatorship of an elite who think they already know all the answers so don't need any democracy inside the Labour Party or outside it. That is the problem. As in the USSR however destroying democracy merely produces massive alienation and failure. If you want to have a viable Labour party that can transform society and economy for the masses you need to subject the "elite" to democracy. First make Labour a real popular movement rather than a jobs fare for the Oxbridge back scratchers. You cannot expect a Stalinist type elite to have imagination or creativity. It is not in the job description. Having no ideas is a requirement of the structure of party and politics.

[CahalMoran]

I don't really buy the 'this is a special case' arguments put forth by Cowen etcetera, mostly because every crisis seems to have people saying that.

My contribtion would be:

- LVT. Spurs production, raises revenues, can't be passed on. What's not to like?

- Low long term interest rates with another BW style stabilisation scheme. This is the best path to inducing investment.

- Writing off loans/writing them down to ability to pay. Private debt is too high.

[Metatone]

West German style regional business banks. Set up as non-profit type, non-governmental banks. Or maybe some kind of regional mutual structure can be created. Details according to your preference.

Anyway, finance institutions whose remit is to lend to local, Mittelstand type businesses. That's how you build an industrial base...

[Metatone]

As a side note, there's plenty of evidence that "enterprise" in the UK is held back by the banking infrastructure. The high street banks have no interest in understanding SME business banking - and there's no incentive for them to start. Either housing rebounds as their main trade, or they drift into international investment finance. We need institutions who are forced by regulation to look for business close to home...

[George Hallam]

"As a side note, there's plenty of evidence that "enterprise" in the UK is held back by the banking infrastructure. The high street banks have no interest in understanding SME business banking - and there's no incentive for them to start."

Which is why we need council-backed investment banks to finance the local economy, like the Bank of Lewisham proposed by Lewisham People Before Profit.

[Keith]

People Before Profit? I totally agree mate; well said! Problem is Labour have not believed that since 1982? 1989? Well for a long time. Now we have millipede sorry milliband talking more balls ( with balls ) at his conference. Time to demonise welfare claiments and council tenants just to curry favour with the daily mail: now thats a big idea! Who could do that any better? the Tories would never do it or those nice liberals! Lets all attack the poor since we really need three tory parties rather than one. Are you for real? Go back to your constituencies and prepare for... a long time in opposition.

[George Hallam]

"People Before Profit? I totally agree mate; well said! Problem is Labour have not believed that since 1982? 1989?"

Who is taking about the Labour Party?

In Lewisham local campaigners gave up trying to influence the Labour Party (or the Conservatives, Lib Dems or even the Greens) some time ago. We are now registered as a political party and we stand in elections (5 percent in the Lewisham Mayoral election in May 2010).

Of course we still talk to the other parties but now we stand against them we find it less frustrating when they don’t listen.

[fake]

So if you cap top pay, with the idea you give that it stops the chancers (being liberal with words here).

And you managers as custodians rather than controllers.

How on earth do you expect companies to expand/change/innovate etc, these seems like a recipe for stagnation.

[fake]

*Which is why we need council-backed investment banks to finance the local economy, like the Bank of Lewisham proposed by Lewisham People Before Profit.*

And how do these banks loan wisely, how do they choose what is a good business to loan to, and a bad one.

Will their targets be profit based, or as a "council-backed" bank, targets to loan X amount, regardless of the loaner's risk.

There are so many pitfalls to this idea, I can't find the energy to list them.

[pablopatito]

"This would be OK(ish) if our problem were merely a cyclical one of temporarily weak demand. But it is not."

Sure, but it's our problem to a degree, just not the whole problem. So Balls policy would improve the situation a bit, but not completely.

If Wolves were playing Barcelona and were 5-0 down, I could argue that we should have four defenders rather than two. You could rightly say that our defence isn't the only problem, our midfield will still be over-run. Wolves can't beat Barcelona, but a manager can still change tactics to limit the loss.

I'd love Balls to say his solution is to increase welfare payments to the unemployed, but a policy that will never get you elected isn't really a policy at all (for the opposition at least).

[chris y]

Hard to fault your four points. The practical difficulty is that they, in this time and place, effectively revolutionary demands. By which I mean they can't be realised under prevailing conditions without massive class struggle which challenges the structure of the state (and that's not going to happen next week). They are in fact much in keeping with the approach of the demands in the final chapter of the "Communist Manifesto".

Nothing wrong with that as far as it goes, just as long as we understand what we're letting ourselves in for.

[George Hallam]

Fake lamented:
“And how do these banks loan wisely, how do they choose what is a good business to loan to, and a bad one…[?]

There are so many pitfalls to this idea, I can't find the energy to list them.”
The proposal for a council-backed investment bank to finance the local economy arose in response to pressing problems we have here in Lewisham. Listing problems running our own investment bank is all very well if one is serious about funding such a bank. Using such problems as an argument against the whole idea won’t convince people. To do that one needs to explain how the underlying problems can be solved WITHOUT setting up a council-backed investment bank to finance the local economy.

Banks like these would also be one way of making the British banking system more modular and therefore more robust: something people talk about but stop short of putting forward concrete proposals.

[TheThoughtGang]

fake

"How on earth do you expect companies to expand/change/innovate etc, these seems like a recipe for stagnation."

Do we think that only the highly paid can/will innovate?

I'd suggest many organisations fail to expand/change/innovate *because* disparity of reward leads to misplaced ideas about who, within the organisation, is best placed to help it develop.

For starters, let's remember that in the real world most highly paid people are highly paid because of past achievements. I'm quite well paid.. not because I made good decisions today, or yesterday, or because I'll make them tomorrow… but because I made them last year.

On a personal level, I've become well paid because I did good things in my company in lower paid positions. Go me. I try to remember this and listen to people in lower paid positions today.. they often know better than I do (just like I might know better than those paid more than me). I consider this positive. I see exmaples elsewhere, in my organisation and others, where management are more dictatorial and things don't go to well.